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THE 

THEORY  AND  PRACTICE 
OF  TAXATION 


BY 

DAVID  AMES  WELLS,  LL.D.,  D.C.L. 

Author  of  Recent  Economic  Changes,  Etc. 

LATE  MEMBRE  CORRESPONDANT  DE  l'iNSTITUT  DE  FRANCE  ; 

CORRESPONDEXTE    REGIA    ACCADEMIA    DEI    LINCEI,    ITALIA  ; 

HONORARY  FELLOW  ROYAL  STATISTICAL  SOCIETY,  ETC. 


New  York 

D.  Appleton  and  Company 

1900 


Copyright,  1900. 

bt  d.  appleton  and  company. 


CO 


o 


TO 

MY    FRIENDS 

CHAKLES  NOKDHOFF 

AND 

GOEDOX   LESTER   FORD. 


323G40 


NOTE. 


Or  Mr.  Wells's  writings  on  economic  subjects  nothing 
remains  to  be  said.  They  have  a  position  of  their  own, 
and  have  deservedly  attracted  much  attention  and  high 
commendation  at  home  and  abroad.  For  many  years  he 
had  in  contemplation  a  work  on  taxation,  which  should 
contain  the  record  of  his  own  experience  in  practical  con- 
tact with  State  and  national  tax  systems,  and  of  his  studies 
and  conclusions  drawn  from  the  history  of  taxation  in 
other  countries.  Strong  in  critical  ability  and  enjoying 
wide  opportunities  for  obtaining  material,  he  sifted  the 
facts  and  theories  with  a  view  to  combining  the  best  of 
both  into  a  volume  which  might  serve  as  an  account  of 
existing  tax  methods  and  as  an  index  or  guide  to  a  better 
system.  Some  of  this  material  he  used  from  time  to  time 
in  connection  with  current  discussion;  but  the  greater 
part  appears  in  these  pages  for  the  first  time.  It  is  unfor- 
tunate that  he  did  not  live  to  give  the  chapters  their  final 
form,  but  the  work  was  practically  complete  when  he  laid 
down  the  pen.  Certain  matter  was  to  be  added  to  the 
historical  section,  and  the  criticism  of  national  and  State 
tax  problems  was  to  be  extended,  and  new  decisions  of  the 


vi       THE  THEORY   AND   PRACTICE  OF  TAXATION. 

courts  incorporated.  The  last  chapters,  in  which  he  de- 
veloped the  law  of  the  ditt'usion  of  taxes,  were  sketched  by 
him,  and  embody  the  essence  of  the  conclusion  he  had 
reached.  Few  changes  have  been  made  in  the  text,  and 
for  whatever  errors  have  crept  in  the  editor  is  responsible. 

WORTHINGTON   ClIAUNCEY  FOED. 
Boston,  November  27,  1899. 


CONTENTS, 


CHAPTER  PAGE 

Introduction 1 

I. — Recent  tax  experiences  of  the  Federal  Govern- 
ment OF  the  United  States 18 

II. — The  place  of  taxation  in  literature  and  history  62 

III. — Greece  and  Rome  .        . 85 

IV. — Taxation  in  the  middle  ages 100 

V. — Taxation  in  France  and  Mexico       .        ,        .        .117 

VI. — Taxation  in  Egypt  and  Brazil 141 

VII. — Taxation  in  British  India 158 

VIII. — Taxation  in  Switzerland 180 

IX. — The  definition,  object,  and  sphere  of  taxation      .  197 

X. — Relation  of  taxation  to  the  state  ....  222 

XI. — Limitation  on  the  instrumentalities  of  taxation  .  247 
XII. — The  sphere  of  taxation  peculiar  to  the  Federal 

Government  of  the  United  States        .        .        .  268 
XIII. — Rules   or  maxims  essential  to  an  administration 

OF   RIGHTFUL   TAXATION   UNDER  A  CONSTITUTIONAL   OR 

free  government — Part  I 284 

XIV. — Rules  or  maxims  essential  to  an  administration 
of  rightful  taxation  under  a  constitutional  or 

FREE  government — Part  II 305 

XV. — Nomenclature  and  forms  of  taxation — Part  I       .  330 

XVI. — Nomenclature  and  forms  of  taxation — Part  II     .  357 

XVII. — The  existing  methods  of  taxation — Part  I     .        .  384 

XVIII. — The  existing  methods  of  taxation — Part  II   .        .  398 

XIX. — The  existing  methods  of  taxation — Part  III .        .  418 

vii 


viii     THE  THEORY  AND  PRACTICE  OF  TAXATION. 

CHAPTER  PAOE 

XX. — Double  taxation 438 

XXI. — What  is  property? 460 

XXII. — Taxation  of  choses  in  action 485 

XXIII. — The  case  ok  Kirtland  vs.  Hotcukiss      .        .        .  493 

XXIV. — Theory  and  practice  of  income  taxation      .        .  514 
XXV. — What   should  be  taxed,  and  how  it  should   be 

TAXED 556 

XXVI. — The  law  of  the  diffusion  of  taxes       ,        .        .  569 

XXVII. — The  best  methods  of  taxation — Part  I         .        .  603 

XXV'III. — The  best  methods  of  taxation— Part  II        .        .  617 

Index 643 


THE    THEORY    AND    PRACTICE 
OF    TAXATION. 


INTRODUCTION. 

It  is  the  purpose  of  the  writer,  in  the  chapters  which 
follow,  to  discuss  the  principles  of  taxation  from  a  broader 
basis  and  by  different  methods  than  have  heretofore  been 
attempted,  special  consideration  being  given  to  the  experi- 
ence of  the  United  States. 

Such  a  discussion  primarily  involves  the  inquiry,  of 
how  far  the  varied  and  curious  experience  of  nations  leads 
up  through  what  may  be  regarded  as  a  process  of  evolu- 
tion, to  a  recognition  of  the  underlying  and  essential 
principles  of  a  just  and  at  the  same  time  an  efficient  sys- 
tem of  taxation.  And  it  also  necessitates,  for  the  attain- 
ment of  correct  conclusions  in  the  prosecution  of  such 
inquiry,  that  illustrations  drawn  from  the  world's  great 
record  of  experience  should  take  precedence  of  theory, 
especially  in  the  way  of  example  and  exhibit  of  the  many 
abuses  of  the  power  of  taxation  which  the  ignorance  of 
legislators  and  the  cupidity  of  designing  men  have  mflicted 
upon  nations. 

The  subject  is  one  of  transcendent  importance,  per- 
haps more  universally  important  than  any  other  that  can 
invite  public  attention.  Its  discussion  opens  questions  of 
the  widest  possible  range.  There  can  be  no  civilization 
without  government,  and  no  government  without  an  ade- 
quate supply  of  revenue  obtained  from  the  persons  and 
property  of  the  people  governed.  There  can  be  no  health 
in  the  body  politic  without  sound  finance,  and  no  sound 
finance  without  a  sound  system  of  taxation.  In  fact, 
taxation  is  to  our  body  politic  what  blood  is  to  the  body 
physical:  if  healthy,  infusing  life  and  warmth;  but  if  un- 

1 


THE   THEORY   AND   PRACTICE   OF   TAXATION. 

healthy,  the  agent  for  producing  discontent,  decrepitude, 
and  paralysis. 

The  absence  or  existence  of  limitations  on  the  power 
of  a  government  to  make  compulsory  levies  on  the  prop- 
erty or  persons  of  its  people  for  its  use  or  support,  con- 
stitutes the  dividing  line  between  a  despotism  and  a  free 
government — a  fact  most  pertinent  to  legal,  economic,  and 
societary  studies  which  has  attracted  little  attention. 

The  methods  and  scope  of  what  is  called  taxation 
regulate  more  than  all  other  agencies  the  distribution  of 
wealth,  which  is  really  the  great  question  of  the  future 
to  all  nations.  Ever  since  Adam  Smith  wrote  his  para- 
mount work  on  the  "Wealth  of  Nations  the  political  econ- 
omists and  students  of  social  science  have  concerned  them- 
selves mainly  with  the  production  of  wealth.  That  prob- 
lem has  been  practically  solved.  Wealth  is  now  produced 
with  a  rapidity  that  the  world  has  never  before  supposed 
possible,*  and  the  laws  governing  its  production  have  be- 
come w^ell  understood  by  those  w^ho  have  made  a  special 
study  of  the  subject.  An  inevitable  result  of  this  condition 
of  affairs  has  been,  that  wealth  produced  under  the  greater 
control  that  man  in  general  has  obtained  over  the  forces 
of  Nature  has  aggregated  itself,  as  it  always  will,  in  the 
hands  of  those  whose  faculties  especially  qualify  them  to 
obtain  and  manage  it,  and  who,  in  common  parlance,  have 
received  the  name  of  "  money-getters."  These  have  be- 
come enormously  rich,  while  the  masses,  whose  material 
condition  is  also  absolutely  much  better  than  at  any  former 
period  of  the  w^orld's  history,  are,  however,  relatively 
poorer.  Improved  instruments  for  transportation  have 
greatly  facilitated  intercommuni cation, f   and  the  oppor- 

*  Recent  investigations  indicate  that  the  absolute  effective  force 
available  to  the  American  people  for  the  production  of  Avealth 
is  more  than  three  times  greater  at  the  present  time  than  it  was 
in  1860.  The  outflow  of  13ritish  capital  for  inv-estment  in  foreign 
securities  and  negotiated  in  London  alone,  during  the  eight  years 
next  previous  to  1890,  has  been  estimated  by  those  best  qualified 
to  express  an  opinion,  to  have  amounted  to  the  large  sum  of 
nearly  or  quite  $700,000,000  per  annum.  And  this  estimate  does 
not  comprise  all  the  British  capital  loaned  to  foreign  countries, 
but  only  such  as  was  subject  to  public  cognizance. 

t  The  number  of  people  annually  transported  on  the  railroads 
alone  in  the  United  States  exceeds  many  times  the  total  population 


DISTRIBUTION  OF   WEALTH.  3 

tunity  thus  afforded  for  the  observation  of  extreme  con- 
trasts in  individual  conditions  has  operated  as  a  very  great 
factor  in  occasioning  discontent  among  tlie  masses,  who,  by 
reason  of  the  never  as  yet  fully  tested  experiment  of  univer- 
sal suffrage,  have  become,  at  least  theoretically  in  the 
United  States,  the  sole  arbiters  of  the  policy  of  their  Gov- 
ernment and  of  the  selection  of  the  legislators  who  are  to 
enact  laws  in  conformity  with  such  policy.* 

The  problem  of  the  acquisition  of  wealth  having  thus 
been  solved,  that  of  the  proper  distribution  of  wealth 
logically  and  necessarily  follows,  and  the  character  of  the 
measures  which  directly  or  indirectly  involve  what  is 
called  taxation  for  the  attainment  of  such  result,  which 
seem  to  commend  themselves  to  the  people  of  the  United 
States,  is  especially  worthy  of  attention.  These  measures 
are  indicated  in  part  by  the  adoption  of  a  pension  system 
unlike  anything  of  the  kind  ever  known  in  history,  and 
which  necessitates  an  annual  expenditure  of  money  (raised 
by  taxation)  to  meet  the  military  expenses  of  the  country 
— army,  navy,  and  pensions — in  excess  of  that  entailed 
by  the  immense  military  establishment  of  any  of  the  coun- 
tries of  Europe,  and  the  enactment  of  an  income-tax 
statute  whose  primary  object  was  not  to  raise  revenue  for 
the  support  of  the  Government,  but  an  unmistakably  po- 
of the  country,  the  annual  number  for  the  New  England  States 
being  more  than  sixteen  times  greater  than  their  population.  The 
widening  of  the  sphere  of  one's  surroundings,  and  a  larger  ac- 
quaintance with  other  men  and  pursuits,  have  long  been  recog- 
nised as  not  productive  of  content.  Writing  to  his  nephew  more 
than  one  hundred  years  ago,  Thomas  Jefferson  thus  concisely  ex- 
pressed the  results  of  his  own  observation:  "Travelling,"  he  says. 
"  makes  men  wiser,  but  less  happy.  When  men  of  sober  age  travel 
they  gather  knowledge,  but  they  are,  after  all,  subject  to  recol- 
lections mixed  with  regret;  their  affections  are  weakened  by  being 
extended  over  more  objects,  and  they  learn  new  habits  which  can 
not  be  gratified  when  they  return  home." 

* "  The  great,  the  unanswerable  argument  in  favour  of  uni- 
versal suffrage  is,  not  that  it  insures  a  better  or  purer  govern- 
ment, but  that  all  must  be  contented  with  a  government  in  which 
all  have  an  equal  voice.  If  it  be  deficient  in  this  particular,  if  it 
fail  to  protect  the  poor  against  the  oppression  of  the  rich,  or  the 
rich  against  a  destruction  of  their  property  by  the  poor,  it  is  pro 
tanto  a  failure,  and  another  method  of  representation  should  be 
adopted." — Address  of  Jvstice  Broirri,  THiitrd  States  Supreme 
Court,  before  the  Law  Department  of  Yale  University,  July,  1S95. 


4         THE   THEORY   AND   PRACTICE   OF  TAXATION. 

litical  and  socialistic  measure,  which  threatened  to  annul 
the  most  important  and  exceptional  feature  of  the  Federal 
Constitiition. 

That  the  diminishing  rate  of  returns,  in  way  of  interest 
or  profits,  by  the  force  of  laws  Avhich  no  combination  of 
capital  can  resist,  is  seriously  impairing  the  relative  value 
of  wealth,  and  may  eventually  reach  a  minimum  which 
will  greatly  diminish  the  inducement  to  individuals  to 
economize  or  save  it,  although  not  generally  recognised 
or  appreciated,  can  not  be  denied.*  And  neither  is  it  rec- 
ognised that  the  current  rate  of  taxation  on  capital  in 
all  civilized  countries  even  now  approximates,  and  to  an 
extent  actually  exceeds,  the  current  rates  of  interest  or 
profit  on  its  use.  Thus,  for  example,  the  rate  of  discount 
at  the  Bank  of  England  during  the  greater  portion  of  the 
years  1894  and  1895  has  not  been  in  excess  of  two  per  cent, 
and  the  discount  (borrowing)  rate  for  three  months  dur- 
ing this  period  was  not  infrequently  less  than  a  rate  of 
three  quarters  per  cent  per  annum.  If  taxes,  according 
to  popular  theory,  do  not  diffuse  themselves,  but  remain 
a  burden  on  the  person,  business,  and  property  subject  to 
their  first  incidence,  there  is  a  problem  likely  to  come  at 
no  distant  day  before  tax  legislators,  which  up  to  the  pres- 
ent time  they  have  hardly  thought  of,  and  which  is  certain 
under  a  free  government  to  be  solved  by  human  nature 
rather  than  by  statute,  f 

*  The  French  economist,  Paul  Leroy-Beaulieu,  treats  fully  of 
this  subject  in  his  Essai  sur  la  Repartition  des  Richesses. 

f  M.  Leon  Say,  the  distinguished  French  economist,  in  a  recent 
discussion  of  the  income  tax,  asserts  that  the  public  and  private 
financial  history  of  France  has  been  one  of  incessant  abolition 
of  private  and  state  debts,  and  in  substantiation  of  such  a  con- 
clusion he  shows  that  if  a  capital  of  8,3.30  francs  had  been  in- 
vested in  national  debt  obliofations  of  France  in  1522  and  allowed 
to  remain  subject  to  the  various  changes  in  respect  to  capital  and 
interest  which  the  financial  policy  of  the  state  has  necessitated 
and  required  under  its  successive  governments,  the  present  value 
of  the  investment  to  the  legitimate  heirs  of  the  first  investor  would 
be  but  83  francs. 

The  reduction  of  annual  income  to  the  holders  of  the  national 
debts  of  Europe,  contingent  on  the  refunding  of  the  same  during 
the  year  1894,  is  estimated  at  $24,000,000,  reqviiring  an  addition 
of  $960,000,000,  with  an  earning  capacity  of  two  and  a  half  per 
cent  per  annum,  to  the  total  of  what  is  called  capital,  to  make 
up  for  the  subtraction  of  income  from  the  individual   holders  of 


TAXATION   AND   MORALITY.  5 

The  scope  and  methods  of  raising  revenue  for  the  sup- 
port of  a  State  are  also  some  of  the  greatest,  if  not  the  very, 
greatest,  determining  factors  of  the  morality  of  a  people. 
"  I  insist,"  said  an  eminent  lawyer  and  member  of  the  / 
Constitutional  Convention  of  the  State  of  New  York  inf 
1868,  "  that  a  people  can  not  prosper  whose  officers  work 
and  tell  lies.  There  is  not  an  assessment  roll  now  made 
out  in  this  State  that  does  not  both  tell  and  work  lies." 
And  no  member  of  the  convention,  or  any  representative 
of  the  press,  either  then  or  subsequently,  has  challenged 
the  assertion.  The  extent  also  to  which  the  existing  S3^s- 
tem  of  taxation  in  the  United  States  has  obliterated  the 
sense  of  honesty  in  its  people  in  their  individual  dealings 
with  the  Government,  removed  all  repugnance  to  the  act 
of  perjury,  and  caused  each  one  to  justify  himself  to  his 
conscience  for  making  a  false  return  in  the  matter  of  taxes, 
by  the  supposition  that  every  one  is  doing  the  same,  is  also 
strikingly  illustrated  by  the  circumstance,  that  a  high 
court  in  one  of  the  States  of  the  Federal  Union  has  re- 
cently decided  that  "  perjury  in  connection  with  a  man's 
tax  lists  does  not  affect  his  general  credibility  under  oath."^^ 

The  idea  that  the  proper  relation  of  a  State  to  its 
people  is  essentially  of  a  paternal  nature  finds  much  of 
popular  approval,  and  is  without  doubt  j^opularly  desired. 
Accepting  this  idea  as  correct,  let  us  exemplify  it  in  its 
application  to  the   State.     ^Suppose  a  father  in  dealing 
with  his  family,  placed,  so  far  as  his  children  are  con- 
cerned, a  premium  on  lying  and  concealment,  and  vested 
with  a  heavy  penalty  all  truthfulness  and  straightforward 
dealing,  he  would  be  regarded  as  a  worthy  inmate  for  the  J 
States  prison.     But  this  is  exactly  what  the  Government  I 
of  the  United  States  does,  or  proposed  to  do,  in  the  casej 
of  many  of  its  so-called  tax  statutes.  jThus  in  the  recent 
income-tax  statute  it  offered  to  its  citizens  considerations 
in  money  if  they  would  forswear  themselves,  or  practise 

such  securities  in  the  previous  year.  In  the  United  States  the 
shrinkage  in  the  amount  of  annual  dividends  paid  on  the  capital 
stock  of  its  railroads  between  the  years  1892  and  l<Sn4  is  reported 
as  in  excess  of  $14,000,000,  and  in  the  annual  interest  on  bonds 
during  the  same  period  at  $13,000,000.  or  a  total  greater  than  the 
losses  contingent  on  the  whole  refunding  operations  of  the  states 
of  Europe  during  1894. 


6         THE   THEORY  AND   PRACTICE   OP   TAXATION. 

deception;  and  it  imposed  a  direct  and  heavy  fine  on  those 
who  were  conscientious  and  truthful.*  Again,  when  the 
Government  imposes  a  tax  of  more  than  a  thousand  per 
cent  in  excess  of  the  prime  cost  of  the  article  taxed,  as  it 
did  in  1864  in  the  case  of  distilled  spirits  (whisky),  it 
offered  a  premium  for  the  perpetration  of  fraud  that 
human  nature  as  ordinarily  constituted  could  not  resist. 
Could  any  course  of  action,  if  deliberately  intended,  be 
more  demoralizing  to  a  people  ?  Do  not  these  experiences 
go  far  in  support  of  the  theory  that  if  a  people  desire  to 
have  a  paternal  government  it  would  be  wise  to  choose 
a  despotic  form,  inasmuch  as  all  experience  has  shown 
that  a  republican  or  popular  form  of  government  is  least 
fitted  for  such  work?  Give  democracy  a  firm  hold  of  the 
reins  of  government,  and  it  is  no  easy  matter,  as  the 
French  Revolution  of  1789  and  the  present  fiscal  condition 
of  France  exemplify,  to  restrain  its  excesses. 

It  should  not  furthermore  be  overlooked  that  that  class 
of  the  community  to  whom  the  questions  of  morality  and 
religion  are  especially  intrusted,  rarely,  if  ever,  give  this 
subject  of  taxation  any  attention,  [if  any  sermon  has  ever 
/been  preached  in  this  country  by  any  clergyman  of  any 
/denomination  on  the  moral  and  religious  results  of  a  de- 
/  fective  system  of  taxation,  the  writer  has  never  heard  of 
I  itJ    One  reason  and  apology  for  such  conduct  may  be  found 
Tn  the  circumstance  that  intelligent  and  reliable  exposi- 
tions of  this  subject  are  not  readily  accessible.     Indiffer- 
ence or  antagonism  to  the  study  of  taxation  is  not,  how- 
ever, confined  to  the  clergy.    Minds  trained  in  the  law  are 
not   necessarily,    and   indeed    rarely,   trained   thereby   to 


*  "  The  obvious  method  of  requiring  an  oath  as  to  the  accuracy 
of  the  return,  coupled  with  the  severe  penalties  attached  to  all 
perjury,  have  been  found  by  experience  to  be  of  very  doubtful 
expediency.  The  history  of  taxation  in  the  United  States  has  long 
since  established  the  fact,  on  documentary  evidence,  that  in  that 
country  this  requirement  has  made  perjury  habitual  in  tax  assess- 
ments. .  .  .  The  danger  of  using  the  oath  in  connection  with  self- 
assessment  of  taxes  lies  in  this  fact,  that,  besides  its  evil  elTects 
on  morals,  it  still  further  increases  the  inequality  of  assessments; 
one  part  of  the  taxpayers  will  have  their  conscience  aroused  by 
the  oath,  while  others  do  not,  so  that  the  inequality  to  be  ex- 
pected under  any  system  of  self-assessment  will  simply  be  aug- 
mented."— Colin,  Science  of  Finance,  p.  618. 


STARE  DECISIS.  7 

esteem  or  intelligently  discuss  economic  subjects.  One 
of  the  most  eminent  members  of  the  American  bar  recently 
remarked  to  the  writer  that,  grant  whatever  measures  of 
importance  we  may  to  economic  principles  and  interests, 
they  have  no  place  in  the  legal  profession,  the  business  of 
which  was,  not  to  make  or  amend  laws  as  expressed  in 
enactments,  but  to  interpret  and  determine  their  applica- 
tion. Hence  the  popularity  at  the  American  bar  of  the 
legal  maxim  stare  decisis,  which  may  be  interpreted  to 
mean,  follow  precedents,  and  do  not  attempt  to  invalidate 
the  reasons  and  conclusions  of  the  lawmakers.  Such  a 
theory  and  rule  of  practice  would,  however,  close  the  door 
on  reason  and  truth,  and  constitute  an  almost  insuperable 
barrier  to  all  social  progress.  If  Lord  Mansfield,  when  the 
negro  slave  Somerset  came  before  him  with  a  demand  that 
he  be  given  his  freedom,  had  followed  precedents,  he  would 
have  denied  the  application,  for  such  precedents  were  op- 
posed to  it.  But  recognising  the  change  which  an  ad- 
vanced civilization  had  effected  in  the  government  of  the 
English  people,  and  that  the  slave  was  held,  to  quote  his 
language,  "  in  virtue  of  positive  law  "  (precedent),  "which 
preserves  its  force  long  after  the  reasons  and  occasions 
from  whence  it  was  created  are  erased  from  memory," 
he  granted  the  application;  and  incorporated  into  the 
policy  of  the  English  Government  the  principle  of  which 
the  British  people  have  ever  since  been  proud — that  no 
person  can  continue  to  be  a  slave  after  he  has  planted  his 
foot  on  English  soil. 

Other  obstacles,  at  present  almost  insuperable,  in  the 
way  of  establishing  a  correct  system  of  taxation,  are  that 
the  subject  has  not  been  until  recently  properly  taught, 
if  taught  at  all,  in  the  higher  institutions  of  learning  of 
the  United  States  and  Great  Britain ;  that  up  to  the  pres- 
ent time  there  is  rarely  if  ever  given  a  correct  and  scientific 
definition  of  the  terms  "  tax "  and  "  taxation,"  which 
makes  it  somewhat  doubtful  if  those  who  talk  about  their 
meaning  and  incidents  know  what  they  are  talking  about; 
that  there  are  no  text-books  on  the  subject  generally  ac- 
cepted as  authoritative;  that  there  is  no  clear  and  settled 
understanding  even  as  to  what  constitutes  the  main  sub- 
ject of  taxation — namely,  property;  that  the  meaning  of 
terms  which  have  formed  the  basis  of  statutes  and  legal 


S         THE   THEORY   AND   PRACTICE   OF  TAXATION. 

practice  is  entirely  different  in  the  I'nited  States  and  other 
leading  civilized  nations ;  and  that,  as  a  nile,  professors 
of  economic  science  in  the  United  States  have  failed  to 
recognise  in  their  reasoning  and  teachings  of  this  whole 
subject,  that  the  Government  of  the  United  States,  both 
Federal  and  State,  differs  in  many  respects,  both  in  theory 
and  practice,  from  any  other  government  that  has  hereto- 
fore existed:  and  that  therefore  ideas  and  experiences 
which  are  regarded  as  the  basis  of  sound  policy  in  respect 
to  taxation  in  the  former  are  not  accepted  as  such  in  the 
latter.  Thus  the  United  States,  alone  of  the  great  nations 
of  the  world,  regards  debts  and  credits  as  property  right- 
fully subject  to  taxation.  The  United  States  is  also  the 
only  nation  in  which  the  taxation  of  exports  is  forbidden 
both  to  Federal  and  State  governments  under  any  circum- 
stances. To  no  other  government,  furthermore,  than  that 
of  the  United  States  is  applicable  the  following  principle 
enunciated  by  the  United  States  Supreme  Court  (116 
United  States  Reports,  p.  631)  respecting  the  assessment 
and  collection  of  taxes :  '*  Any  compulsory  discovery,  by 
extorting  the  party's  oath,  or  compelling  the  production 
of  his  private  books  and  papers  to  convict  him  of  a  crime 
or  to  forfeit  his  property,  is  contrary  to  the  principles  of 
a  free  government.  It  is  abhorrent  to  the  instincts  of  an 
American.  It  may  suit  the  purposes  of  despotic  power, 
but  it  can  not  abide  the  pure  atmosphere  of  political  liberty 
and  personal  freedom."  If  this  principle  was  recognised 
as  the  higher  law  in  European  states,  it  would  be  safe  to 
say  that  the  revenue  collected  from  their  income  taxes 
would  be  exceedingly  small. 

It  is  also  a  very  curious  circumstance  that  an  exist- 
ing system  of  municipal  or  local  taxation,  which  has 
proved  itself  to  be  most  intelligent,  satisfactory,  and  effi- 
cient for  revenue,  and  most  worthy  of  being  studied  as  a 
model  for  adoption,  has  as  yet  almost  entirely  failed  of 
recognition  or  consideration  by  any  of  the  recent  writers 
on  taxation  or  authorities  on  general  economic  subjects 
on  either  side  of  the  Atlantic. 

Again,  ignorance  or  wilful  disregard  of  the  true  prin- 
ciples of  taxation  in  the  United  States  has  powerfully  con- 
tributed to  foster  the  idea  among  its  people  that  they 
should  look  to  Government  for  their  support,  rather  than 


BENEFITS  OF  TAXATION.  9 

that  the  people  should  support  the  Government.  The 
practical  incorporation  of  this  idea  into  the  fiscal  policy 
of  the  Government  has  enabled  a  comparatively  few  per- 
sons to  accumulate  vast  fortunes,  has  built  up  class  dis- 
tinctions, promoted  popular  discontent,  and  established  a 
precedent  for  state  socialism.  Figs,  however,  can  no  more 
be  gathered  from  thistles  than  class  legislation,  whether 
it  be  the  rich  against  the  poor  or  the  poor  against  the  rich, 
can  be  looked  to  for  the  perpetuation  of  popular  govern- 
ment or  the  spread  of  democratic  virtues.  The  evil  of 
bad  taxation  is  not  merely  economic,  it  is  moral,  and  no 
argument  can  change  its  character. 

To  defective  elementary  education,  in  respect  to  the 
principles  of  taxation,  may  also  be  attributed  the  almost 
universal  disassociation  in  the  minds  of  the  masses  be- 
tween the  payment  of  taxes  and  the  benefit,  or  profitable 
return  consequent  upon  such  payment.     The  youth  of  the 
United  States,  and  doubtless  of  all  other  countries,  as  he 
grows  up,   finds   roads   and   bridges,   schools,   courts   and 
churches,  commercial  regulation  and  police — in  short,  all 
national.  State,  or  municipal  machinery — provided  for  him 
almost  as  freely  as  air,  sunshine,  or  water.     He  has  but  to 
live  to  experience  their  benefits  or  discomforts.     At  home 
these  subjects,  regarded  as  dry  and  abstruse,  are  rarely 
if  ever  selected  as  topics  for  social  conversation,  and,  if 
casually  brought  up,  are  discussed  merely  in  reference  to 
their  bearing  upon  the  interests  of  this  or  that  political 
party.  ^The  sons,  therefore,  of  even  refined  and  intelli- 
gent American  families,   so   far  as  home  education   and; 
influences  are  concerned,  enter  upon  their  duties  as  citi- 
zens, with  votes  and  voices  for  determining  the  policy  of  1 
their  government,  with  not   merely  an  entire  ignorance  \ 
of  the  principles  or  methods  by  which  the  cost  of  the  bene-  I 
fits  accruing  from  such  policy  are  defrayed,  but  witha^^ 
disinclination  to  receive  instruction  on  the  subject.  "Ea[cn| 
one,  indeed,  seems  to  argue  to  himself  that  "  as  govern- 
ment and  society  went  on  very  well  without  thought  or 
care  of  mine  during  the  first  twenty  years  of  my  life,  thev/ 
will  undoubtedly  so  continue  during  my  manhood."     Arid 
if  they  eventually  become  public  functionaries,  their  tend- 
encies, conjoined  with  not  having  inherited  or  acquired 
the  value-perceiving  faculty,  are  toward  extravagance  and 
2 


10       THE  THEORY  AND  PRACTICE  OF  TAXATION. 

waste  in  governmental  matters.  What  would  have  been 
saved  to  the  people  of  the  United  States  since  the  begin- 
ning of  the  civil  war  through  wise  methods  of  taxation  is 
almost  beyond  conception.  The  loss  to  the  Federal  Gov- 
ernment during  the  single  year  1864,  when  revenue  was 
most  needed  on  account  of  the  war,  through  a  needless  im- 
perfection of  the  law  imposing  taxes  on  the  single  item  of 
distilled  spirits,  was  proved  to  have  been  in  excess  of 
fifty  million  dollars. 

In  short,  it  is  a  most  singular  idiosyncrasy  of  the 
American  people,  and  perhaps  the  people  of  all  other  coun- 
tries, that  they  W4ll  defer  or  neglect  the  study  of  the  most 
vital  question  which  can  concern  a  citizen.  ;  Probably  not 
more  than  one  citizen  out  of  a  hundred,  even  among  those 
who  pay  taxes,  can  be  induced,  as  a  rule,  either  to  talk 
about,  think  about,  or  study  how  much  national  Govern- 
ment costs  him  per  annum,  or  how  much  his  State  or  local 
government  costs.  And  as  long  as  this  is  the  situation, 
and  until  the  Arnerican  citizen  does  become  a  student  of 
taxation,  it  is  difficult  to  see  how  the  national  and  State 
governments  can  be  wisely  and  Justly  managed. 

Of  the  utter  lack  of  comprehension  of  the  results  of 
what  may  be  termed  everyday  experiences  of  taxation, 
coupled  with  a  general  indifference  to  the  subject,  which 
often  characterizes  iVmerican  legislators,  even  such  as  are 
popularly  regarded  and  spoken  of  as  statesmen,  the  follow- 
ing incidents  will  abundantly  illustrate:  Pending  a  recent 
presidential  election,  a  distinguished  member  of  the  Sen- 
ate of  the  United  States,  and  also  of  the  American  bar, 
assured  a  popular  audience  that  the  people  of  the  single 
State  of  Illinois  paid  a  larger  amoimt  in  taxes  to  the 
Federal  Government  than  were  paid  by  all  the  people  of 
the  former  Confederate  States.  Such  a  statement  was  ob- 
viously made  on  the  assumption  that  because  the  State 
of  Illinois  annually  manufactured  a  very  large  amount 
of  distilled  spirits,  the  burden  of  a  very  heavy  tax  on  the" 
same  rested  upon  its  people;  when  a  very  little  thought 
would  have  shown  that  the  manufacturers  of  the  spirits 
incorporated  the  tax  in  the  market  price  of  their  product, 
and  that  the  payment  of  the  same  fell  entirely  upon  the 
people  who  consumed  them,  who  were  not  in  the  main  the 
people  of  Illinois.     If  this  was  not  the  case,  the  manu- 


FALSE   IDEA  ON   A  TAX.  H 

facturers  of  Illinois  paid  and  assumed  a  tax  obligation  of 
ninety  cents  a  gallon  for  the  privilege  of  making  whisky 
costing  and  worth  an  average  of  but  thirteen  cents  per 
gallon.  The  average  annual  consumption  by  the  people 
of  Illinois  at  the  time,  supposing  that  they  actually  paid 
the  tax  on  their  product  of  whisky,  must  have  also  been 
at  the  rate  of  over  six  gallons  per  head  for  every  man, 
woman,  and  child  of  its  population. 

When  "  an  act  to  reduce  taxation  to  provide  revenue 
for  the  Government  and  for  other  purposes  " — passed  Au- 
gust 28,  1894 — was  under  consideration  by  the  Senate  of 
the  United  States;  and  pending  a  proposition  to  increase 
the  revenue  by  increasing  an  existing  tax  of  about  seven 
hundred  per  cent  on  the  average  prime  cost  of  distilled 
spirits  to  a  rate  of  nearly  nine  hundred  per  cent,  a  Senator 
of  long  experience,  apparently  utterly  oblivious  that  the 
subject  involved  had  years  before  been  thoroughly  con- 
sidered by  the  United  States  Treasury  Department  and 
declared  to  be  impracticable,  submitted  a  motion,  permit- 
ting the  use  of  alcohol  in  the  arts,  or  in  any  medicinal  or 
other  like  compound,  without  the  payment  of  any  internal 
revenue  tax.  The  motion  in  question,  after  very  brief 
consideration,  was  accepted  and  incorporated  in  the  statute 
and  now  forms  a  part  of  the  fiscal  obligations  and  laws 
of  the  United  States.  The  result  was  that  the  Secretary 
of  the  Treasury  reported,  that  in  default  of  any  appro- 
priation to  defray  the  expenses  of  the  administration  of 
the  act  and  the  repayment  of  taxes,  and  "  after  full  con- 
sideration of  the  subject,  and  an  vinsuccessful  attempt  to 
frame  regulations  which  would  protect  the  Government 
and  the  manufacturers,  the  department  was  constrained 
to  abandon  the  effort."  It  was  also  estimated  that  the 
expense  to  the  Government  of  attempting  to  administer 
the  act  would  probably  be  not  less  than  one  million  dollars 
per  annum ;  that  the  legitimate  loss  of  revenue  contingent 
on  its  enforcement  would  be  about  ten  million  dollars 
yearly,  or  "  more  than  one  half  of  the  estimated  increase 
of  revenue  "  that  was  expected  to  accrue  from  the  increase 
of  the  tax,  and  that  the  loss  of  revenue  from  the  oppor- 
tunity for  illicit  and  fraudulent  practice,  which  the  act 
would  facilitate,  would  be  unquestionably  very  considerable 
— probably  an  equal  amount.     The  inference  from  all  of 


12       THE   THEORY  AND   PRACTICE   OF  TAXATION. 

which  is,  that  when  a  State  sends  a  representative  to  the 
United  States  Senate  who,  through  indiiTerence  or  gross 
ignorance  of  the  most  common  principles  and  domestic 
experiences  of  taxation  prospectively,  entails  a  loss  to  the 
Government  of  some  twenty  million  dollars  per  annum,  it 
pays  a  very  great  price  for  such  a  privilege. 

During  another  comparatively  recent  fiscal  debate  in 
the  T'^nited  States  Senate,  a  Senator,  who  is  popularly  and 
justly  accredited  with  statesmanship,  advocated  certain 
proposed  appropriations  of  the  public  money,  which  were 
opposed  on  the  ground  that  they  w-ere  in  the  nature  of  ex- 
travagances, by  Saying  that  they  could  not  be  grievous  to 
the  people  "  since  they  would  not  amount  to  more  than 
three  cents  per  day  per  capita."  But  three  cents  per  day 
assessed  on  sixtv-five  millions  of  people  would  amount  to 
nearly  eleven  dollars  per  head  per  annum,  or  over  seven 
hundred  million  dollars  for  the  entire  country. 

Finally,  there  has  been  one  most  serious  and  unfor- 
tunate mistake,  which  nearly  all  who  have  undertaken  to 
discuss  the  principles  and  practice  of  taxation  have  been 
prone  to  make — a  mistake,  moreover,  which  more  than 
all  else  is  responsible  for  the  opinion  which  has  come  so 
generally  to  prevail,  that  the  subject  of  taxation,  through 
lack  of  any  fixed  principles  or  axioms,  does  not  as  yet  rise 
to  the  dignity  of  a  science ;  and  that  its  practice  at  the  best 
can  be  but  a  sort  of  empiricism,  to  be  varied  in  proportion 
to  the  strength  which  a  government  possesses  to  enforce 
its  enactments,  or  in  proportion  to  the  prejudices  of  the 
people  who  are  to  be  called  on  for  a  contribution.  The 
mistake  consists  in  taking  up  the  subject  for  investigation 
and  discussion,  if  we  may  so  express  it,  wrong  end  fore- 
most ;  or  in  devoting  time  and  effort  to  warring  against 
abuses;  or  in  attempting  to  show  how  certain  forms  of 
taxation  commend  themselves  in  respect  to  productiveness, 
freedom  from  personal  inquisition,  and  economy  in  col- 
lection, and  how  others  are  to  be  avoided  for  contrary 
reasons;  and  in  not  attempting  to  inquire  whether  the 
whole  subject  was  underlaid  by  any  general  laws  in  ac- 
cordance with  which  the  contributions  which  the  State 
is  compelled  as  a  condition  of  its  existence  to  exact  of  its 
citizens  diffuse  themselves;  and  which  laws,  being  once 
deteunined,  will   constitute   a  certain   and   sure   founda- 


TAXATION  AND  WEALTH.  13 

tion  on  which  practical  administration  can  be  based  and 
conducted. 

The  fact  that  such  laws  exist  and  only  await  discovery 
may  be  predicated,  as  it  were,  from  surface  indications, 
in  the  form  of  a  great  variety  of  disconnected  economic 
facts,  with  just  as  much  of  certainty  as  the  miner  who, 
picking  up  here  and  there  in  the  beds  of  streams  frag- 
ments of  coal  or  ore  which  the  elements  have  scattered, 
predicates  that  somewhere  there  must  be  a  larger  vein 
or  deposit  from  which  the  fragments  have  been  derived. 

The  aggregates  of  the  suras  required  by  the  governments 
of  the  world  for  their  support  are  annuall-y  increasing,  but 
probably  in  no  greater  ratio  than  the  increase  in  their 
wealth,  or  property  rightfully  subject  to  taxation;  and  in 
those  states  in  which  there  is  a  marked  and  continued 
increase  in  the  control  of  the  forces  of  Nature  for  produc- 
tion, the  ratio  of  taxation  to  aggregate  wealth  undoubtedly 
tends  to  diminish. 

That  there  are,  however,  some  striking  illustrations 
that  seem  to  prove  to  the  contrary,  is  not  to  be  denied. 
Thus,  we  have  a  recent  statement  that  the  expenses  of  the 
city  of  Philadelphia  in  eight  years  have  increased  two 
hundred  and  thirty  per  cent,  while  the  taxable  valuation 
of  property  in  the  same  time  has  increased  only  twenty- 
five  per  cent.  In  1862  the  aggregate  taxation  of  the 
city  of  Providence,  E.  I.,*was  $379,000.  In  1893  it  was 
$2,333,000.  In  the  former  year  the  taxable  real  and  per-  ^ 
sonal  estate  was  valued  at  $61,000,000,  while  for  the  year  ^ 
1892  the  valuation  was  $155,000,000.  Thus  the  increase  i? U--^ 
in  the  amount  of  taxes  collected  within  the  thirty  years 
was  five  hundred  and  fifteen  per  cent,  while  in  the  amount 
of  assessable  property  the  gain  was  only  one  hundred  and 
fifty-four  per  cent.  The  rate  of  tax  increased  during  the 
same  period  from  $6.50  to  $15  per  $1,000. 

Among  the  leading  nations  of  the  world  the  compara- 
tive burden  of  exactions  by  Government  is  heaviest  in  Eus- 
sia,  Italy,  and  France.  In  Eussia  the  present  govern- 
mental exactions — under  the  name  of  taxes — from  the 
agricultural  peasant  are  reported  to  be  about  forty-five 
per  cent  of  the  value  of  his  annual  product  or  earnings. 
In  Italy  the  state  exaction  is  believed  to  absorb  from  one 
third  to  one  half  of  the  value  of  its  agricultural  product. 


14       THE  THEORY   AND  PRACTICE   OF   TAXATION. 

The  present  aggregate  of  annual  taxation  in  France  is  un- 
doubtedly the  greatest  to  which  any  country  in  modern 
times  has  been  subjected;  and  including  all  taxes — na- 
tional and  local — is  estimated  as  in  excess  of  $1,400,000,- 
000,  or  about  one  fourth  of  the  annual  income  of  its 
people.  And  yet  it  is  claimed  that  the  prosperity  of  the 
nation  is  increasing.  There  can,  however,  be  no  doubt 
that  the  financial  strain  caused  by  such  great  and  continu- 
ous demands  on  the  income  of  the  French  people  is  begin- 
ning to  be  severely  felt ;  and  in  a  recent  budget  discussion 
in  the  Senate  of  the  republic,  M.  Loubet,  chairman  of  its 
financial  committee,  insisted  that  taxation  had  reached 
its  utmost  endurable  limit.* 

As  far  back  as  1879  the  taxation  imposed  by  Spain  on 
her  island  of  Cuba  was  reported  to  have  made  the  latter  the 
most  heavily  taxed  country  in  the  world;  the  rate  on  its 
free  population  being  then  estimated  as  equal  to  $34.50 
per  capita. 

The  cost  of  the  Government  of  Great  Britain  for 
1893-'94  defrayed  by  what  are  termed  imperial  taxes — 
mainly  customs  and  inland  revenue,  and  deducting  all 
items  of  compensating  revenue,  as  receipts  from  crown 
lands,  etc. — was  £75,427,000.  The  total  expenditures  of 
the  local  authorities  of  the  kingdom  for  1893,  defrayed 
from  rates  on  the  annual  value  of  houses,  or  lands  occu- 
pied, from  gas  and  water  rents,  4;olls,  dues,  loans,  etc.,  and 
less  the  grant  of  subsidies  from  the  Imperial  Government, 

*  In  a  recent  article  in  the  Economiste  Frangais,  M.  Leroy- 
Beaulieu  presents  some  facts  which  enable  foreigners  to  form  an 
opinion  of  the  financial  management  of  France  under  its  present 
democratic  form  of  government.  There  is  at  present,  according  to 
this  well-recognised  authority,  an  actual  annual  deficit  of  between 
three  and  four  hundred  million  francs.  The  floating  debt,  "  of- 
ficial or  concealed,"  has  taken  enormous  proportions,  and  is  met 
by  a  variety  of  expedients,  and  mostly  by  secret  loans  (which  are 
always  costly),  because  the  GoA'ernment  does  not  dare  contract  a 
large  public  loan,  the  only  regular  and  least  expensive  means  of 
extrication  from  financial  embarrassments.  Expenses  are  piling 
up  and  nobody  takes  any  thought  of  repressing  them.  In  short, 
according  to  M.  Leroy-Beaulieu,  there  is  under  the  present  Gov- 
ernment, notwithstanding  "  constant  and  vain  buzzing  on  the  sub- 
ject of  democratic  reforms,  the  adhesion  of  a  mollusc  to  the  wretch- 
edest  routine  and  a  downright  hatred  of  every  kind  of  improve- 
ment." 


TAXATION  FROM  EXPEDIENCY.         15 

was  about  £56,000,000,  making  an  aggregate  of  £131,400,- 
000— or  $657,000,000. 

For  the  year  1890  the  aggregate  receipts  of  the  Federal 
and  State  governments  of  the  United  States,  mainly  from 
taxes,  as  reported  by  the  census  for  that  year,  were  $1,040,- 
473,013,  apportioned  as  follows:  Federal  taxation,  $461,- 
154,000 ;  State  or  local  taxation,  $578,328,000.  Deducting 
the  cost  of  postal  service  repaid  by  postal  charges,  and  the 
receipts  from  the  sale  of  public  lands,  the  aggregate  ex- 
penditures of  the  Federal  Government  would  have  been 
about  $390,000,000. 

Of  these  large  sums  it  is  safe  to  say,  more  especially 
of  the  latter  national  summary,  that  a  very  small  propor- 
tion, not  even  as  much  as  a  single  dollar,  has  been  raised 
under  a  statute  framed  and  enacted  solely  from  recog- 
nition of  and  conformity  with  any  correct  economic  prin- 
ciples; and  that  in  most,  if  not  all,  tax  legislation,  ideas 
not  warranted  by  thought  and  experience,  and  based  on 
expediency  or  political  considerations,  have  always  pre- 
dominated. Illustrations  of  the  truth  of  this  assertion 
are  abundant,  but  for  the  present  one  most  pertinent, 
drawn  from  recent  experience,  must  suffice.  In  August, 
1891,  the  Farmers'  Alliance  of  the  State  of  Maryland  held 
a  convention  in  Baltimore  for  the  purpose  of  advocating 
a  complete  revision  of  the  tax  laws  of  their  State,  the  im- 
perfection, injustice,  and  practical  futility  of  which  were 
not  questioned;  and  after  general  debate  the  following 
resolutions  were  unanimously  adopted,  not  one  of  which 
is  economically  true;  not  one  of  which  in  the  light  of  ex- 
perience can  be  ^iccessfully  enforced  by  other  than  a 
despotic  government ;  and  every  one  of  which,  if  enforced, 
would  prove  prejudicial  to  the  interests  of  the  community 
which  sanctions  and  enacts  them : 

"  Resolved,  that  the  burden  of  all  taxation  ought  to  be 
imposed  equally  and  impartially  on  all  property,  of  what- 
soever kind,  both  personal  and  real,  without  distinction 
and  discrimination;  that  every  exemption  from  taxation 
is  equivalent  to  direct  appropriation  for  the  benefit  of  the 
owner  of  exempt  property,  and  an  increased  levy  on  the 
property  of  those  who  pay  taxes ;  that  no  tax  law  which 
provides  for  the  exemption  of  any  property  of  any  kind 
can  be  either  expedient  or  just;  that  no  law,  no  contract, 


16       THE  THEORY  AND   PRACTICE   OF  TAXATION". 

no  device  which  by  any  means  directly  or  indirectly  im- 
poses the  payment  of  any  part  of  any  tax  n})on  any  man 
not  the  bona  fide  owner  of  that  property  ought  to  be  toler- 
ated; that  debts  secured  by  mortgages  at  legal  interest  are 
among  the  best  and  most  productive  forms  of  property,  and 
should  be  taxed  where  the  mortgages  are  recorded."  * 

A  recent  English  writer  has  claimed  that  the  experi- 
ence in  reference  to  taxation  of  the  forty-five  anomalous 
sovereignties  which  now  make  up  the  United  States  (none 
subordinate  to  a  national  Government  except  to  a  limited 
extent  and  in  respect  to  particular  questions),  has  thrown 
a  great  light  \ipon  the  temper  of  democracies.  "  Half  a 
century  ago  every  thinker  predicted  that  the  one  grand 
evil  of  democracy  would  be  meanness;  that  it  would  dis- 
play an  '  ignorant  impatience  of  taxation,'  and  that  it 
would  refuse  supplies  necessary  to  the  dignity,  or  at  least 
to  the  visible  greatness,  of  the  state."  That  prediction 
has,  however,  proved  itself,  not  only  by  the  experience  of 
the  United  States,  but  also  of  the  leading  countries  in 
Europe,  to  be  the  exact  contrary  of  the  facts.  "  The  lower 
the  suffrage,  the  higher  the  budget  mounts.  Democracy 
loves  spending,  is  devoted  to  dignity,  and,  provided  they 
are  indirect,  or  fall  heaviest  on  the  rich,  will  pay  any 
amount  of  taxes.  The  English  democracy  with  household 
suffrage,  though  it  has  reduced  its  debt,  has  increased  its 
budget,  increased  rates  all  over  the  country,  and  would 
not  be  frightened  to-morrow  if  a  great  socialistic  experi- 
ment were  to  cost  it  a  hundred  millions.  It  hardly  shud- 
ders when  it  is  asked  to  support  in  comfort,  at  a  cost  of 
about  £17,000,000  ($85,000,000),  its  whole  aged  poor. 
The  French  democracy  has  nearly  doubled  its  taxation 
and  raised  its  debt  more  than  a  third,  apart  from  the 
tribute  paid  to  Germany.  The  German  democracy,  with 
enlarged  suffrage,  a  poor  soil,  and  nearly  universal  poverty, 
is  always  granting  new  demands,  whether  for  soldiers, 
ships,  colonies,  or  centralized  officials." 

But  it  is  in  the  United  States,  with  universal  suffrage 
^and  the  richest  of  estates,  that  the  extravagance  of  govern- 
ment expenditures,  sustained  by  taxation,  rises  to  a  point 

*  In  the  following  chapters  the  absurdity  of  the  above  resolu- 
tions will  be  specifically  demonstrated. 


DEMOCRACY  AND  TAXATION.  17 

which  fiscal  experts,  like  Alexander  Hamilton,  Robert  J. 
Walker,  and  Albert  Gallatin  in  the  United  States,  and 
William  Pitt,  Sir  Eobert  Peel  or  Ricardo  in  England, 
could  not  have  been  persuaded  to  believe  possible.  Either 
of  them  would  have  declared  an  American  pension  list 
arising  out  of  war  only  and  not  covering  any  allowances 
to  civil  servants,  amounting  to  $155,000,000  (£31,000,- 
000)  a  year,  too  absurd  for  credence,  and  would  have  criti- 
cised the  prophet  who  made  the  prediction  for  his  poverty 
of  invention. 

That  the  interests  benefited  by  national  extravagance 
will,  under  free  suffrage,  always  constitute  a  formidable  y^ 
obstacle  to  judicious  tax  reform,  especially  if  such  reform 
contemplates  national  economizing,  can  not  well  be 
doubted;  and  also  that  this  opposition  will  be  re-enforced 
to  some  extent  by  a  popular  feeling  that  something  of 
colour  and  dignity  will  go  out  of  national  life  by  any 
marked  curtailment  of  the  expenditures  of  the  State.  On 
the  other  hand,  the  political  supremacy  of  the  United 
States  confessedly  yet  resides  in  its  agricultural  classes, 
who  more  than  any  other  are  characterized  by  a  spirit  of 
thrift  and  a  desire  for  equitable  and  low  taxes. 

Such,  then,  is  the  situation  which  confronts  any  one 
who  proposes  to  discuss  broadly  the  great  subject  of  taxa- 
tion with  a  view  of  effecting  reforms  in  the  existing  sys- 
tem. It  exacts,  on  the  part  of  him  that  is  to  attempt  it 
with  any  prospect  of  success,  a  familiarity  with  theory, 
not  merely  gained  from  the  study  of  books,  but  theory 
based  on  extensive  practical  administration.  It  requires, 
on  the  part  of  both  the  teacher  and  the  taught,  what  Her- 
bert Spencer  has  declared  to  be  the  conditions  of  success 
in  all  departments  of  scientific  research,  namely,  "  an 
honest  receptivity  and  willingness  to  abandon  all  precon- 
ceived notions,  however  cherished,  if  they  be  found  to  con- 
tradict the  truth." 


CHAPTER  I. 

RECENT   TAX    EXPERIENCES   OF   THE   FEDERAL   GOVERNMENT 
OF  THE  UNITED  STATES. 

Before  passing  to  the  detailed  consideration  under 
proper  and  consecutive  subdivisions  of  the  subject  of  taxa- 
tion, the  writer  thinks  it  expedient  to  outline  briefly  the 
exceptional  circumstances  under  which  his  studies  and 
investigations  have  been  prosecuted;  inasmuch  as,  apart 
from  any  expectation  of  consequent  intelligent  criticism 
on  his  conclusions,  a  somewhat  personal  narration  may 
help  to  a  better  popular  understanding  of  a  great  chapter 
in  the  nation's  fiscal  experience,  which,  although  without 
a  parallel  in  all  history,  has  thus  far  received  scant  notice 
and  little  appreciation  on  the  part  of  economic  writers  and 
historians. 

His  first  connection  with  economic  and  fiscal  questions 
of  public  import  was  through  the  publication,  at  the  dark- 
est financial  period  of  the  war — 1864 — of  the  results  of  an 
inquiry  into  the  resources  and  prospective  debt-paying 
ability  of  the  United  States,  and  bearing  the  title  of  Our 
Burden  and  Our  Strength.  This  essay,  although  first 
printed  privately,  was  reprinted  and  circulated  by  the 
Loyal  Publication  Society  of  New  York,  and,  receiving 
the  approbation  of  the  Government,  became  one  of  the 
current  publications  of  the  war  period.  Reprinted  in 
different  sections  of  the  country  by  loyal  citizens,  and  also 
in  repeated  instances  in  England,  translated  into  French 
and  German,  it  attained  a  very  large  circulation;  in  excess 
of  two  hundred  thousand  copies.  Coming  at  a  period 
when  the  nation  was  beginning  to  be  alarmed  at  the  mag- 
nitude and  prospective  increase  of  its  public  debt,  and 
apprehensive  of  an  impending  crushing  burden  of  taxa- 
tion, its  publication  and  circulation  were  instrumental  in 
18 


COMMISSION  ON  THE  REVENUE.  19 

restoring  public  confidence  and  maintaining  the  credit  of 
the  Government. 

The  attention  of  President  Lincoln  having  been  at- 
tracted to  this  publication,  he  invited  the  author  in  early 
February,  1865,  to  come  to  Washington  and  confer  with 
him  and  Mr.  Fessenden,  then  Secretary  of  the  Treasury, 
on  the  best  methods  of  dealing,  after  the  termination  of 
the  war  (then  evidently  near  at  hand),  with  the  enormous 
debt  and  burden  of  taxation  that  the  war  had  entailed 
upon  the  nation.*  The  result  of  this  conference  was,  that 
an  amendment  was  added,  at  the  last  hours  of  the  Thirty- 
eighth  Congress,  to  a  bill  "  To  provide  Internal  Eevenue," 
and  passed  March  3,  1865,  authorizing  the  Secretary  of 
the  Treasury  "  to  appoint  a  commission  of  three  persons 
to  inquire  and  report  at  the  earliest  practical  moment  on 
the  subject  of  raising  by  taxation  such  revenue  as  may  be 
necessary  to  supply  the  wants  of  the  Government,  having 
regard  to  and  including  the  sources  from  which  such  reve- 
nue should  be  drawn,  and  the  best  and  most  effectual  mode 
of  raising  the  same."  The  commission  was  further  em- 
powered "  to  inquire  into  the  present  and  best  methods  of 
collecting  the  revenue,"  and  to  take  testimony.  Of  this 
commission  the  writer  was,  unexpectedly  to  himself,  ap- 
pointed chairman  by  the  then  Secretary  of  the  Treasury — 
Hon.  Hugh  McCulloch — after  the  assassination  of  the 
President,  but  in  accordance  with  his  previously  indicated 
wishes,  t     It  was  also  deemed  expedient  that,  of  the  other 

*  Mr.  Lincoln  opened  the  conference  by  remarking  that,  al- 
though the  war  was  evidently  drawing  to  a  close,  he  feared  that 
great  difficulties  were  yet  to  be  encountered  through  the  possible 
unwillingness  or  inability  of  the  nation  to  pay  the  war  debt,  or 
the  great  increase  in  taxation  which  the  war  had  made  necessary; 
and  followed  this  remark  by  asking  if  the  writer  had  anything  to 
suggest  on  the  subject.  The  offhand  answer  returned  was,  that  the 
best  thing  to  be  done  was  to  have  an  examination  made  by  competent 
persons  of  the  resources  of  the  country  and  the  best  methods  of 
making  them  available  for  meeting  the  expenses  of  the  Govern- 
ment through  taxation.  Turning  to  the  Secretary  of  the  Treasury, 
Mr.  Lincoln  remarked :  "  That's  a  pretty  good  idea,  Fessenden, 
isn't  it?  We'll  think  about  it";  and  as  the  hour  (evening)  was 
becoming  late,  the  conference  substantially  soon  ended. 

t  The  appointment  was  unsolicited  and  unexpected,  and  Mr. 
Fessenden  some  years  afterward  stated  that  when  the  composition 
of  the  commission  was  under  consideration  Mr.  Lincoln  remarked 


20   THE  THEORY  AND  PRACTICE  OF  TAXATION. 

members,  one  should  be  a  representative  of  the  agricul- 
tural interests  of  the  West,  and  a  third  a  citizen  of  Penn- 
sylvania, the  chairman  being  at  the  time  a  citizen  of  New 
York;  and  in  accordance  with  this  view  Mr.  Samuel  S. 
Hayes,  who  had  distinguished  himself  as  Comptroller  of 
Chicago,  and  Mr.  Stephen  Colwell,  of  Philadelphia,  a 
gentleman  of  advanced  age,  and  a  successful  manufactur- 
er of  iron,  who  had  written  some  years  before  the  war  an 
able  book  entitled  Ways  and  Means  of  Payment,  a  Full 
Analysis  of  the  Credit  System,  were  selected.  A  word 
of  retrospection  is  here  essential  to  an  understanding  of 
the  situation. 

If  it  be  an  axiom  in  political  and  social  as  well  as 
physical  and  natural  science,  that  the  first  requisite  for 
progress  consists  in  the  correct  observation  and  recording 
of  phenomena,  whereby  old  laws  or  principles  may  be  veri- 
fied or  extended  and  new  ones  discovered,  it  would  be 
difficult  to  imagine  a  field  more  fruitful  for  investigation 
and  more  promising  of  reward  than  the  financial  and  in- 
dustrial experiences  of  the  United  States  immediately 
anterior  and  subsequent  to  the  outbreak  of  the  civil  war — 
experiences  which  had  truly  the  character  of  vast  social 
and  political  experiments,  made  on  a  scale  of  magnitude 
rarely  if  ever  before  equalled;  for  the  most  part  emphat- 
ically tentative  in  character,  and  affecting  in  their  results 
not  only  the  growth,  the  income,  and  the  industrial  pur- 
suits of  the  nation  directly  and  immediately  concerned, 
but  also  in  a  greater  or  less  degree  the  trade  and  com- 
merce of  the  whole  world. 

At  the  breaking  out  of  the  civil  war  in  18G1,  the  United 
States  was  in  the  anomalous  position  of  a  great  nation 
practically  unencumbered  with  a  national  or  public  debt. 
Excise,  stamp,  income,  license,  and  direct  or  general  prop- 
erty taxes  under  the  Federal  Government  were  absolutely 
unknown ;  the  expenses  of  a  simple  and  economical  ad- 
ministration being  defrayed  almost  entirely  by  indirect 
taxes,  levied  in  the  form  of  a  tariff  on  the  importation 
of  foreign  products  or  merchandise.  In  fact,  the  only 
other  noticeable  source  of  national  revenue  was  from  the 


that  "  he  thought  we  had  better  let  the  young  man  who  had  sug- 
gested the  idea  of  it  be  at  the  head  of  it." 


EARLY  REQUIREMENTS  OF  THE  GOVERNMENT.   21 

sale  of  public  lands,  which,  at  a  maximum  price  fixed  by 
law  of  one  dollar  and  a  quarter  per  acre,  returned  to  the 
Treasury  an  average  income  of  from  one  to  three  million 
dollars  per  annum;  rising  in  a  few  instances,  during 
periods  of  wild  speculation,  to  six,  fourteen,  and  in  one 
exceptional  year  (1836)  to  even  twenty-four  million 
dollars. 

The  average  rate  of  duties  imposed  on  the  aggregate 
value  of  foreign  importations  during  the  thirty  years  im- 
mediately preceding  1860  was  about  twenty  per  cent;  but 
for  a  portion  of  the  time  the  annual  rate  was  much  less, 
and  for  a  number  of  years — 1834  to  1843  and  1858  to  1861 
inclusive — it  was  not  in  excess  of  fifteen  per  cent.  An 
occasional  need  of  money  by  the  Government  was  met  by 
loans  on  Treasury  notes  or  short-term  bonds. 

But  notwithstanding  these  limitations  on  the  sources 
and  amount  of  income,  the  requirements  of  the  national 
Government  for  all  purposes  were  so  moderate  that  the 
receipts  of  its  Treasury  continually  tended  to  exceed  its 
disbursements ;  and  the  difficulty  which  most  frequently 
presented  itself  to  its  financial  administrators  was  not 
the  customary  one  in  all  other  countries,  of  how  to  avoid 
an  annual  deficit,  but  rather  how  to  manage  to  escape  an 
inconvenient  but  inevitable  surplus.  And  it  is  a  curious 
fact,  and  one  perhaps  altogether  unprecedented  and  almost 
unrecognised  in  history,  that  from  the  years  1837  to  1857 
there  was  rarely  a  single  fiscal  year,  in  which  the  unex- 
pended balance  in  the  national  Treasury — derived  from  a 
few  sources — at  the  end  of  the  year,  was  not  in  excess  of 
one  half  of  the  total  expenditure  of  the  preceding  year.* 

To  provide  for  the  vise,  or  rather  to  get  rid  of  a  con- 
tinual surplus,  various  plans  were  from  time  to  time  sug- 
gested.     In   one  instance  the   House  of  Representatives, 

*  Dvning  the  decade  from  1821  to  1831  the  average  ordinary 
annual  expenditures  of  the  United  States  M-ere  $12,390,000,  or  at 
the  rate  of  $1.07  per  capita  of  its  whole  population. 

From  1831  to  1841,  $24,740,000,  or  $1.61  per  capita. 

From  1841  to  1851,  $33,760,000,  or  $1.63  per  capita. 

From  1851  to  1861,  $57,870,000,  or  $2.06  per  capita. 

For  the  year  1894  the  total  expenditures  of  the  Federal  Gov- 
ernment, as  officially  reported,  were  $442,605,758,  or  $6.08  per  capita 
of  the  entire  population  of  the  country;  or  $4.50  less  expenditure 
for  pensions. 


22       'J^'HE   THEORY  AND   PRACTICE   OF  TAXATION. 

on  motion  of  Henry  Clay  (the  leading  statesman  of  his 
day),  seriously  considered  the  question  of  the  expedien- 
cy of  the  national  Government  becoming  by  purchase 
and  investment  a  partner  in  various  stock  corporations 
or  enterprises;  and  pending  any  conclusion  the  surplus 
funds  were  deposited  in  the  local  or  small  State  banks, 
with  reiterated  injunctions  "  to  loan  liberally  to  mer- 
chants." 

In  1836,  the  unexpended  cash  balance  in  the  Treasury 
of  the  United  States  reported  as  available  for  public  pur- 
poses being  $65,723,959— $46,001,467  of  which  was  on 
deposit  in  ninety-one  different  State  banks — Congress  (by 
act  of  June  23d  of  that  year)  appropriated  the  sum  of 
$37,468,859  for  distribution  among  the  States;  of  which 
$27,063,430  was  officially  certified  in  September,  1837,  as 
having  been  actually  paid.  Most  of  the  States  applied  the 
amount  apportioned  to  them  for  educational  purposes. 
Others  used  it  differently  and  less  wisely :  Massachusetts, 
for  example,  dividing  her  share  proportionally  among  her 
towns  and  cities,  where  it  was  expended  at  the  discretion 
of  the  local  authorities ;  in  one  instance,  in  a  small  fishing 
town,  for  the  construction  of  walks  on  the  sands  for  the 
benefit  of  pedestrians;  and  in  others  for  the  purchase  of 
houses  and  lands  for  the  use  and  settlement  of  the  town's 
poor.* 

As  might  have  been  expected  under  such  circumstances, 
fiscal  and  economic  subjects  were,  during  the  period  under 
consideration,  those  that  least  of  all  attracted  the  atten- 
tion of  the  American  people.  Few  books  or  essays  on  such 
topics  were  either  written  or  read,  while  the  continually 
increasing  agitation  and  interest  respecting  the  existence 
or  extension  of  negro  slavery  furnished  the  never-ending 
and  predominant  theme  for  discussion  alike  to  the  press, 
the  politicians,  the  pulpit,  Congress,  and  the  local  Legis- 
latures. There  had  been,  indeed,  fierce  discussions  and 
political  divisions  in  1836-'38  respecting  the  organization 
and  management  of  banks,  and  the  establishment  of  a 
national  bank;  and  in  1840-'41  and  1846,  respecting  the 


*  See  Bourne.  The  History  of  the  Surplus  Revenue  in  18.37; 
being  an  Account  of  the  Origin,  its  Distribution  among  the  States, 
and  the  Uses  to  which  it  was  applied.    New  York,  1885. 


CONDITIONS  BEFORE  THE  CIVIL   WAR.  23 

construction  and  adjustment  of  the  tariff,  and  the  prin- 
ciples of  free  trade  and  protection.  But  during  the  decade 
from  1850  to  1860  all  these  questions  were  generally 
regarded  as  old-time  issues,  and  by  the  generation  that 
then  had  control  of  the  business  and  government  of  the 
country  were  both  substantially  ignored  and  forgotten; 
and  it  was  during  the  latter  years  of  this  period,  or  from 
1851  to  1860,  that  the  comparative  growth  and  progress 
attained  by  every  department  of  American  trade,  com- 
merce, and  industry  were  greater  than  for  any  correspond- 
ing period  either  before  or  since,  in  the  history  of  the 
nation.  During  the  same  decade  the  increase  in  popula- 
tion of  the  country  was  returned  at  35.59  per  cent,  its 
increase  in  wealth  at  126.4  per  cent,  and  the  average  of 
property  to  each  individual  at  $510.  In  short,  it  would 
be  difficult  to  find  a  more  happy  illustration  of  the  influ- 
ence of  the  "  non-interference  "  or  "  non-obstructive " 
policy  of  a  government  with  the  trade,  commerce,  and 
industry  of  a  highly  civilized  and  active  people,  than  the 
condition  of  the  United  States  at  that  time  afforded. 

That  the  country,  viewed  from  a  politico-economic 
standpoint,  was  at  this  time  in  all  respects  what  it  should 
or  might  have  been,  is  not,  however,  asserted.  The  insti- 
tution of  slavery,  denying  to  over  four  millions  of  human 
beings  the  freedom  of  the  person,  the  right  to  real  property, 
and  the  blessings  of  education,  was  tolerated  and  supported 
by  law.  The  paper  and  ordinary  currency  of  the  country, 
neglected  by  the  General  Government,  and  issued  by  local 
banks  under  almost  as  many  different  systems  as  there 
were  States  in  the  Union,  was  as  defective  as  could  be  well 
imagined,  and  often  necessitated  a  rate  of  exchange  be- 
tween the  different  sections  of  the  country  which  was 
equal  to  or  in  excess  of  the  current  rates  of  interest  at 
the  principal  commercial  centres. 

But  notwithstanding  these  drawbacks  the  people  in 
general  were  highly  prosperous.  Pauperism,  apart  from 
the  large  cities,  was  almost  unknown;  wealth  was  very 
equitably  distributed;  while  the  opportunities  for  ele- 
mentary education  were  free,  and  in  all  the  more  densely 
populated  portions  of  the  country  amply  provided.  In 
short,  the  prosperity  of  the  people  was  so  great,  through 
the  utilization  of  their  natural  resources,  their  activity, 


24       TflE  THEORY   AXD   PRACTICE   OF   TAXATION. 

and  the  continued  influx  of  the  population  and  capital 
of  other  countries,  that  it  constituted  in  itself  an  obstacle 
to  reform ;  and  the  nation  at  large  may  be  said  to  have 
actually  preferred  to  endure  the  various  economic  and 
social  evils  incident  to  their  situation  rather  than  devote 
time  to  their  consideration  and  meet  the  grave  political 
issues  consequent  upon  any  change  or  reformation.  What 
would  have  happened,  what  would  have  been  the  economic 
and  social  condition  of  the  United  States,  had  not  the 
people  of  its  southern  section  appealed  to  the  arbitrament 
of  the  sword  in  the  matter  of  slavery  and  consented  to  its 
peaceful  abolition,*  constitutes  a  most  curious  and  inter- 
esting theme  for  speculation.  Certainly  it  would  have 
been  something  without  precedent  in  the  world's  former 
experience. 

It  was  with  such  antecedents  and  under  such  condi- 
tions that  the  nation  found  itself  in  the  early  months  of 
1861  suddenly  and  unexpectedly  involved  in  a  gigantic 
civil  war,  in  which  its  very  existence  was  threatened  by 
the  uprising  of  at  least  a  third  of  its  population  against 
the  legitimate  and  regularly  constituted  Government. 
The  most  urgent  and  important  requirement  of  the  Fed- 
eral Government  at  the  outset  was  revenue.  Men  in  excess 
of  any  immediate  necessity  volunteered  for  service  in  the 
army,  but  to  equip  and  supply  even  such  as  were  needed 
precipitated  an  avalanche  of  expenditure  upon  the  Treas- 
ury. To  meet  these  financial  requirements  there  was  on 
the  part  of  the  Government  neither  money,  credit,  nor 
any  adequate  system  of  raising  revenue  by  taxation;  the 
previous  reliable  supply  of  revenue  from  the  customs  hav- 
ing at  the  most  critical  period,  through  the  diminution 
of  imports  consequent  upon  the  political  disturbances, 
become  subject  to  a  serious  and  ominous  impairment; 
while  the  money  returns  from  all  sources,  other  than  loans, 
for  the  year  1862  were  only  $2,867,057.  For  this  latter 
year  the  total  ordinary  receipts  of  revenue  of  the  Govern- 
ment were  but  $51,919,000,  and  its  expenditures  $456,- 
379,000. 


*  Subsequent  events  have  made  it  clear  that  with  the  continu- 
ance of  slavery  the  development  of  the  nation  must  have  been 
greatly  retarded. 


WAR  REVENUE  LEGISLATION.  25 

At  the  outset  it  was  assumed  that  the  war  would  be 
short,  and  that  the  expenditures  of  the  Government  could 
be  met  by  the  agency  of  loans  and  an  issue  of  paper  money, 
the  detailed  history  of  which,  although  not  yet  familiar 
to  the  American  public,  is  not  directly  pertinent  to  the 
subject  under  consideration,  and  would  require  a  separate 
essay  for  its  presentation  in  any  degree  of  fulness.  All 
direct  or  internal  taxation  was  accordingly  for  a  time 
avoided ;  there  having  been  apparently  an  apprehension  on 
the  part  of  Congress  that  inasmuch  as  the  people  had  never 
been  accustomed  to  it,  and  as  all  machinery  for  assessment 
and  collection  was  wholly  wanting,  its  adoption  would 
create  popular  discontent,  and  thereby  interfere  with  a 
vigorous  prosecution  of  hostilities.  Congress  accordingly 
confined  itself  at  first  to  the  enactment  of  measures  look- 
ing to  an  increase  of  revenue  from  the  increase  of  indirect 
taxes  upon  imports,  and  it  was  not  until  four  months  after 
the  actual  outbreak  of  hostilities  that  a  direct  tax  of 
twenty  million  dollars  was  apportioned  among  the  States, 
and  an  income  tax  of  three  per  cent  on  all  incomes  in 
excesss  of  eight  hundred  dollars  was  authorized,  the  first 
being  made  to  take  effect  practically  eight  and  the  second 
ten  months  after  date  of  enactment.  Such  laws,  of  course, 
became  operative  in  the  loyal  States  only,  and  produced 
but  comparatively  little  revenue;  and  although  the  sphere 
of  taxation  was  soon  extended,  the  aggregate  receipts  from 
all  sources  by  the  Government  for  the  third  year  of  the 
war — from  excise,  income,  stamps,  and  all  other  internal  i 
and  direct  taxes — was  less  than  forty  million  dollars,  and; 
that,  too,  at  a  time  when  the  expenditures  were  in  excess/ 
of  sixty  million  dollars  per  month,  or  at  the  rate  of  more 
than  seven  hundred  million  dollars  per  annum.  And  as 
showing  how  novel  was  this  whole  system  of  direct  and  in- 
ternal taxation  to  the  people,  and  how  completely  the 
Government  officials  were  lacking  in  all  experience  in  re- 
spect to  it,  the  following  incident  may  be  cited :  The  Secre- 
tary of  the  Treasury,  Mr.  Chase,  in  his  report  for  1863 
stated  that  with  a  view  of  determining  his  resources  he 
had  employed  a  very  competent  person,  with  the  aid  of 
practical  men,  to  estimate  the  probable  amount  of  revenue 
to  be  derived  from  each  department  of  internal  taxation 
for  the  current  year.  The  estimate  arrived  at  was  $85,- 
3 


26       THE  THEORY  AND   PRACTICE   OF   TAXATION. 

456,303,  but  the  actual  receipts  were  less  than  forty  mil- 
lion—$37,640,788.* 

The  people  of  the  loyal  States  were,  however,  more  de- 
termined and  earnest  in  respect  to  this  matter  of  taxation 
and  revenue  than  were  their  rulers,  and  everywhere  the 
one  opinion  expressed  was,  that  taxation  in  all  its  forms 
should  immediately,  and  to  the  largest  extent,  be  made 
effective  and  imperative.  And  Congress,  spurred  up  by 
and  rightfully  relying  on  public  sentiment  to  sustain  its 
action,  at  last  resolutely  took  up  the  matter,  and  devised, 
or  rather  drifted  into,  a  system  of  internal  taxation  which 
for  its  universality  and  peculiarities  has  no  parallel  in 
anything  which  had  theretofore  been  recorded  in  civil  his- 
tory, or  is  likely  to  be  hereafter. 

The  great  necessity  of  the  situation  was  revenue,  and 
to  obtain  it  speedily  and  in  large  amounts  through  taxa- 
tion was  the  only  principle  recognised  (if  it  can  be  called 
a  principle),  and  was  akin  to  that  recommended  to  the 
traditionary  Irishman  on  his  first  visit  to  Donnybrook 
Fair :  "  Wherever  you  see  a  head,  hit  it !  "  Wherever  you 
find  an  article,  a  product,  a  trade,  a  profession,  a  sale,  or 
a  source  of  income,  tax  it !  And  so  an  edict  went  forth  to 
this  effect,  and  the  people  cheerfully  submitted.  Incomes 
under  five  thousand  dollars  were  taxed  five  per  cent,  with 
an  exemption  of  five  hundred  dollars  and  house  rent 
actually  paid.  Incomes  in  excess  of  five  thousand  dollars 
and  not  in  excess  of  ten  thousand  dollars  were  taxed  two 
and  a  half  per  cent  in  addition,  and  incomes  over  ten  thou- 
sand dollars,  five  per  cent  additional,  without  any  allow- 
ance or  exemptions  whatever.  Nearly  every  industrial 
product  was  taxed.  Cotton  was  taxed  at  the  rate  of  two 
cents  per  pound;  salt,  six  cents  per  hundred  pounds;  to- 
bacco, from  fifteen  to  thirty-five  cents  per  pound ;  cigars, 
from  three  to  forty  dollars  per  thousand ;  sugar,  from  two 
to  three  cents  and  a  half  per  pound.  Distilled  spirits  were 
taxed  progressively:  first  at  twenty  cents,  and  finally  at 
two  dollars  per  proof  gallon. 

But  the  most  curious  and  complex  taxes  were  those  im- 
posed on  the  various  products  of  what  may  be  termed 
ordinary  manufacturing  industry — a  tax,  by  intent  or  con- 

*  Finance  Report,  1863,  p.  3. 


INTERNAL  TAXES  ON  INDUSTRY.  27 

stniction,  being  first  imposed  on  the  raw  material,  and 
then  on  the  total  or  increased  value,  according  to  circum- 
stances, of  each  successive  stage  of  its  elaboration  up  to 
the  finished  product.  And,  as  if  this  was  not  enough, 
every  manufacturer  was  compelled  to  take  out  an  annual 
license,  while  the  goods  produced,  if  sold  by  dealers  or 
agents  independent  of  the  manufacturers,  were  subject  to 
an  additional  tax  of  one  tenth  of  one  per  cent,  reckoned 
upon  the  amount  of  sales.  This  tax  upon  manufactures 
and  products,  with  the  exception  of  a  few  articles,  was  at 
first  fixed,  in  1864,  at  an  average  of  five  per  cent;  but  in 
1865  the  rate  was  increased  twenty  per  cent,  making  the 
tax  for  most  articles  six  per  cent. 

Under  the  operation  of  this  system  the  Government 
actually  levied  and  collected  on  many  articles  of  finished 
industrial  products  a  tax  of  six  per  cent,  the  effect  of 
which  may  be  thus  illustrated :  Many  manufacturing 
establishments  sold  products  annually  to  three  times  the 
amount  of  their  invested  capital.  If  the  capital  invested 
was  one  hundred  thousand  dollars  and  the  sales  three 
hundred  thousand,  the  tax  on  that  business  was  eighteen 
thousand  dollars,  or  eighteen  per  cent  on  the  cost  of  the 
establishment. 

The  sales  of  its  products  by  a  manufacturing  establish- 
ment are,  however,  no  indication  of  its  profits.  It  may 
make  and  sell  to  the  amount  of  a  million  dollars  without 
making  a  dollar  of  profit,  but  that,  under  the  law,  was  no 
reason  for  the  non-assessment  and  non-collection  of  a  tax 
of  sixty  thousand  dollars  on  the  value  of  the  product  rep- 
resented by  its  sales. 

Again,  the  effect  of  the  tax  on  every  stage  of  elabora- 
tion of  a  manufactured  product  may  be  illustrated  by  a 
great  variety  of  actual  examples.  Thus,  in  the  case  of 
the  manufacture  of  umbrellas  and  parasols,  it  was  shown 
that  separate  taxes  were  paid,  first,  on  the  sticks  or  sup- 
porting rods ;  then  upon  the  handles,  if  carved  or  turned 
separately,  of  bone,  wood,  or  ivory;  then,  in  like  manner, 
upon  the  brass  runners,  the  tips,  the  ribs,  the  cloth  com- 
posing the  cover,  the  elastic  band  which  fastened  the  cover 
when  closed,  the  rubber  of  which  the  band  was  composed, 
the  button  to  which  it  was  attached;  and  finally  upon  the 
umbrella  itself,  when  the  separate  parts  were  aggregated. 


28   THE  THEORY  AND  PRACTICE  OF  TAXATION. 

and  thereby  converted  into  a  finished  product.  And  if 
any  of  the  constituents  of  the  umbrelhi — as  the  ivory,  the 
silk,  or  the  metal — were  of  foreign  production,  the  same 
were  subjected  on  coming  into  the  country  to  an  import 
duty  in  addition. 

In  the  case  of  books  and  pamphlets,  it  was  proved  by 
the  New  York  Publishers'  Association  that,  including  the 
license  and  income  taxes,  the  finished  book  and  its  con- 
stituent materials  paid  from  fifteen  to  twenty  separate  and 
distinct  taxes  before  it  came  to  the  reader — the  paper  and 
its  constituents,  the  cloth,  the  glue,  the  starch,  the  leather, 
the  slaughtered  animal  whence  the  hide  furnishing  the 
leather  was  obtained,  the  dyes  with  which  the  cloth  or 
leather  was  coloured  or  stained,  the  thread,  the  gold  leaf, 
the  type  metal,  the  type,  and  the  printing  machinery ;  and 
then,  when  the  whole  was  combined,  the  finished  book  paid 
an  additional  tax  of  six  per  cent,  wdiich  was  levied  not 
upon  the  cost  of  manufacture  but  upon  the  price  at  which 
the  book  was  sold.  In  addition  to  all  these  taxes,  the 
manufacturer  or  publisher  paid  for  the  privilege  of  doing 
business  an  annual  license  tax,  and  an  income  tax  of  from 
five  to  ten  per  cent  on  his  profits,  if  he  had  any. 

In  short,  it  was  as  if  a  frontier  line  had  been  drawn 
about  each  individual  article  or  product  in  the  nation, 
across  which  nothing  could  pass  without  being  submitted 
to  an  exaction. 

Besides  these  taxes  on  manufactured  products  of  the 
character  specified,  a  tax  of  from  three  to  six  per  cent  was 
imposed  on  repairs  when  the  value  of  the  article  repaired 
was  increased  by  reason  of  the  repairs  to  the  extent  of 
ten  per  cent ;  and  a  further  tax  of  six  per  cent  on  what 
was  termed  "  increased  values,"  or  the  additional  value 
given  to  any  article,  which  had  either  paid  an  import  or 
internal  tax,  by  being  "  polished,  painted,  varnished, 
waxed,  gilded,  oiled,  electrotyped,  galvanized,  plated, 
framed,  ground,  pressed,  coloured,  dyed,  trimmed,  or  orna- 
mented." 

The  examples  of  difficult  and  nice  adjudication  experi- 
enced in  enforcing  these  two  classes  of  taxes  are  so  curious 
as  to  justify  somewhat  more  than  a  passing  notice.  Thus, 
if  a  worker  in  tin  or  iron  made  a  stove  at  one  hour  and  in 
the  next  hour  repaired  a  stove  to  the  extent  of  more  than 


TAX  ON  REPAIRS.  29 

ten  per  cent  of  its  value,  he  paid  on  the  product  of  his  first 
hour's  work  a  tax  of  six  per  cent,  and  on  his  second  three 
per  cent.  In  like  manner,  a  blacksmith  making  a  taxable 
article,  and  then  repairing  one  exactly  like  it,  was  liable 
to  the  payment  of  the  two  classes  of  taxes ;  and  the  theory 
of  the  law,  furthermore,  was  that  both  the  tinsmith  and 
the  blacksmith  kept  a  separate  and  distinct  account  of 
their  different  transactions.  Again,  if  a  worker  in  wood 
repaired  a  wheelbarrow  worth  one  dollar,  and  by  so  doing 
added  ten  cents  to  its  value,  the  increased  value  was  taxable. 
But  if,  on  the  other  hand,  he  repaired  a  carriage  or  piano- 
forte worth  five  hundred  dollars,  no  tax  accrued  unless  the 
value  of  the  repairs  exceeded  ten  per  cent,  or  fifty  dollars. 
The  following  absurd  case  was  presented  for  adjudication 
under  these  statutes : 

A  wheelwright  repaired  a  carriage  to  the  extent  of  eight 
per  cent.  The  owner  then  passed  it  successively  to  a 
blacksmith,  a  painter,  and  an  upholsterer,  neither  of  whom 
added  repairs  to  the  extent  of  ten  per  cent,  or  knew  the 
value  of  previous  repairs  or  the  value  of  the  carriage 
before  it  was  repaired.  The  question  then  was,  Shall  the 
repairs,  however  extensive,  go  untaxed,  or  shall  the  owner 
be  taxed?  The  construction  of  the  law  was,  that  the  tax 
must  be  assessed  on  the  manufacturer,  or  persons  receiv- 
ing pay  for  the  work,  and  that  the  owner  could  not  be 
the  manufacturer  unless  he  furnished  the  materials,  in 
whole  or  in  part,  for  making  the  repairs;  and  then  the 
further  question  arose,  whether  the  subject  of  repair  in 
the  shape  of  the  old  carriage  furnished  by  the  owner  was 
a  material  for  making  the  repair,  and  thus  constituted  the 
owner  a  manufacturer,  and  as  such  liable  to  taxation. 

In  another  case  the  question  came  up  whether  the  pub- 
lishers residing  in  one  assessment  district  and  having  their 
books  printed  and  bound  by  contract  in  another,  were  to 
be  regarded  as  manufacturers  of  the  books;  or  whether 
the  printers  and  binders  who  executed  the  work  were  to 
be  so  regarded  and  taxed.  And  in  two  instances,  in  two 
contiguous  districts  in  the  State  of  Massachusetts,  the  law 
was  interpreted  in  both  ways,  or  in  one  way  in  one  dis- 
trict and  another  way  in  another  district;  and  the  parties 
interested  submitted  rather  than  incur  the  trouble  and 
expense  of  contesting  the  matter  before  the  courts. 


30       THE   THEORY  AND  PRACTICE  OF  TAXATION. 

In  fact,  it  is  safe  to  say  that  no  more  complicated  and 
absurd  questions  have  ever  seriously  occupied  the  minds  of 
educated  men  since  the  discussions  of  the  schoolmen  in  the 
eleventh  and  twelve  centuries  (as,  for  example,  as  to  how 
many  angels  could  stand  at  once  on  the  point  of  a  fine 
needle),  than  were  evolved  from  the  tax  system  of  the 
United  States  during  and  for  some  time  after  the  war 
period. 

We  have  said  that  the  people  of  the  United  States  sub- 
mitted to  such  a  system.  They  did  more.  For  such  was 
the  fervour  of  patriotism  and  the  determination  to  push 
the  war  to  a  successful  issue,  that  they  rejoiced  in  it ;  and 
during  the  continuance  of  hostilities  there  was  no  move- 
ment or  protest  against  the  system  which  found  any  nota- 
ble response  among  the  masses.  The  country  was  rich, 
and  its  accumulated  resources  had  not  for  two  generations 
been  subjected  by  either  the  national  or  State  governments 
to  extraordinary  taxation.  Wealth,  moreover,  was  very 
uniformly  distributed,  and  the  people  pointed  with  pride 
to  the  annually  increasing  receipts  of  revenue  under  the 
new  system;  which,  starting  with  $41,000,000  of  internal 
revenue  in  1863,  rose  rapidly  to  $117,000,000  in  1864, 
$311,000,000  in  1865,  and  culminated  in  1866  with  the 
large  sura  of  $310,000,000,  making  the  total  revenue  for 
that  year,  drawn  from  all  sources  by  so-called  taxation, 
$559,000,000,  the  largest  sum  contributed  in  any  one  year 
for  the  support  of  any  Government  by  the  free  consent  of 
its  people. 

So  long,  moreover,  as  the  war  lasted,  the  attempts  to 
evade  taxation  by  illicit  methods  were  exceptional  and  in 
amount  inconsiderable.  The  demand  for  most  manu- 
factured and  agricultural  products,  owing  to  the  enormous 
consumption  of  the  armies  and  the  withdrawal  of  labour 
from  its  accustomed  vocations  by  enlistments,  was  fully 
equal  to  or  in  excess  of  supply.  Prices  rose  rapidly  with 
every  increasing  taxation  or  additional  issues  of  paper 
money,*  and  under  such  circumstances  the  fiscal  require- 

*  Among  the  absurd  theories  put  forth  in  justification  of  an 
extravafjant  issue  of  (irredeemable)  paper  money  was  a  favourite 
one,  that  such  a  policy  was  a  matter  of  necessity  to  make  money 
easy,  in  order  that  the  securities  (bonds)  representing  Government 
loans  should  be  easily  floated ;  the  one  uppermost  idea  in  the  heads 


SUBMISSION  TO   TAXATION.  31 

ments  of  the  war  were  not  regarded  by  the  majority  of 
producers  as  oppressive.  But,  on  the  contrary,  counting 
the  taxes  as  elements  of  cost  and  reckoning  profit  as  a  per- 
centage of  the  whole  cost,  it  was  generally  the  case  that 
the  aggregate  profits  of  the  producer  were  actually  en- 
hanced by  reason  of  the  taxes,  to  an  extent  considerably 
greater  than  they  would  have  been  had  no  taxes  whatever 
been  collected.  Indeed,  it  was  not  infrequently  the  case 
that  the  manufacturers  themselves  were  the  most  strenu- 
ous advocates  for  continued  and  rapidly  increasing  taxa- 
tion, with  a  view  of  realizing  thereby,  through  an  advance 
in  prices,  large  additional  profits  on  products,  or  con- 
stituents of  products,  previously  assessed  or  imported  at 
lower  rates  of  (customs)  duties,  and  to  bring  about  such 
advances  influence  and  money  were  used  without  scruple. 
Thus,  in  the  case  of  distilled  spirits,  the  taxation  was  ad- 
vanced in  successive  years  from  twenty  cents  per  gallon  to 
sixty  cents,  next  to  a  dollar  and  fifty  cents,  and  finally  to 
two  dollars  per  gallon,  and  in  each  of  these  instances,  and 
particularly  after  the  imposition  of  the  first  two  and  low- 
est rates,  the  distillers  and  speculators  reckoned,  with  a 
great  degree  of  certainty,  that  a  further  large  advance 
would  be  enacted,  and  that  the  new  law  would  not  be  made 
retroactive  or  applicable  to  spirits  distilled  and  assessed 
previously  and  at  lower  rates.  In  this  they  were  not  dis- 
appointed, for  Congress,  under  the  influences  to  which  it 
was  subjected,  did  virtually  legislate  in  each  instance  in  the 
manner  expected,  and  thus  gave  occasion  for  the  realiza- 

of  the  Government  officials  having  been,  apparently,  that  in  the 
floating  thus  contrived  the  bonds  alone  would  possess  the  property 
of  buoyancy.  But  in  this  they  were  mistaken.  The  bonds  indeed 
floated,  but  everything  else  floated  with  them;  or,  to  borrow  the 
language  of  a  writer  of  the  period  (who  criticised  this  experience 
from  the  humorous  point  of  view),  "the  bonds  were  floated,  but 
by  just  about  the  same  operation  as  that  by  which  things  are 
floated  in  the  suburbs  of  a  town  or  city  submerged  in  a  heavy 
freshet — hencoops  floated,  cellars  floated,  streets  floated,  barge 
houses  and  outhouses  floated,  stray  children  and  first  floors  floated, 
all  creation  floated  and  floated  together."  The  market  for  five- 
twenties  was  made  easy,  the  market  for  flour,  beef,  cotton,  and 
military  stores,  of  which  the  Government  was  compelled  to  pur- 
chase immense  quantities,  was  made  particularly  easy.  The  whole 
country  was  put  under  water  and  remained  so  for  a  considerable 
period  after  the  war  terminated. 


32       THE  THEORY  AND   PRACTICE  OF  TAXATION. 

tion  of  profits  in  strict  conformity  with  law  by  the  holders 
of  stocks  made  in  anticipation  of  the  several  advances, 
which  can  not  be  estimated  at  a  less  aggregate  than 
one  hundred  million  dollars.  Thus,  the  evidence  before 
the  United  States  Kevenue  Commission  in  1865-'66 
showed  that  there  was  on  the  1st  of  January,  1864,  a 
stock  of  tax-paid  distilled  spirits,  made  in  anticipation  of 
an  increased  tax,  sufficient  to  meet  all  the  requirements 
of  the  country  for  a  period  of  six  months,  and  on  each 
gallon  of  this  quantity,  a  profit  or  revenue,  which  did  not 
accrue  to  the  Government,  of  from  sixty  cents  to  a  dollar 
and  forty  cents  per  gallon  was  realized.*  And  yet,  with 
this  lesson  of  costly  experience  before  it,  the  Fifty-third 
Congress,  in  advancing  the  tax  on  distilled  spirits  from 
ninety  cents  to  a  dollar  and  ten  cents  per  gallon,  afforded 
again  such  facilities  to  distillers  and  speculators,  for  an- 
ticipating such  advance,  as  to  legislate  into  their  pockets 
at  least  ten  million  dollars. 

In  the  case  of  cotton,  which  advanced  mainly  by  reason 
of  conditions  affecting  its  production  or  distribution,  it 
was  shown  by  actual  calculation,  in  respect  to  one  manu- 
facturing corporation  in  New  England,  that  if  they  had 
at  the  commencement  of  the  war  burned  their  mills,  lost 
their  insurance,  'and  sunk  their  capital  other  than  was 
invested  in  cotton,  and  had  subsequently  sold  their  cotton  at 
the  highest  price  obtainable  in  place  of  manufacturing  it, 
the  result  would  have  afforded  to  the  stockholders  an  annu- 
ity of  at  least  twelve  per  cent  on  their  original  investments. 

How  much  the  cost  of  the  war  and  its  expression  in 
the  form  of  debt  were  unnecessarily  increased  by  this  state 
of  affairs,  has  not  until  very  recently  been  taken  into 
account  by  writers  on  the  fiscal  history  of  this  period,  and 
probably  can  not  be  accurately  estimated.  But  the  fol- 
lowing data  throw  great  light  on  the  subject :  Thus,  assum- 
ing the  general  average  of  prices  in  the  loyal  States  of  the 
Union  before  the  war,  or,  more  preciselv,  in  1860,  at  100, 
the  average  from  1860  to  1865  was  186.71.  But  for  the 
last  year  of  the  war,  or  in  1865,  it  was  216.81,  and  it  was 
during  this  latter  period  of  greatest  increase  in  prices 
that  the  heaviest  purchases  were  made  by  the  Government 

*  This  is  more  fully  developed  in  the  next  chapter. 


DISCONTENT  OVER  TAXATION.  33 

on  account  of  munitions  and  supplies.  The  increased  cost 
of  the  war  by  reason  of  this  increase  in  the  price  of  com- 
modities, which  in  turn  may  be  in  a  great  degree  attributed 
to  the  use  of  irredeemable  paper  money  invested  with  legal- 
tender  quality,  has  been  estimated  by  Mr.  Edward  Atkin- 
son at  over  a  thousand  million  dollars,  and  the  interest 
on  this  increased  cost  another  equal  sum.  By  so  much, 
furthermore,  as  these  supplies  and  other  necessaries  of  life 
were  increased  in  price  through  the  depreciation  of  the 
currency,  those  who  rendered  personal  service  in  the  army 
and  navy  were  deprived  of  what  ought  to  have  been  the 
purchasing  power  of  the  payments  made  to  them  by  the 
Government  for  such  service. 

With  the  close  of  the  war  a  marked  change  speedily 
occurred,  in  the  nature  of  discontent,  in  the  temper  of 
the  people  in  respect  to  taxation.  But  this  discontent  at 
the  outset  was  restricted  almost  exclusively  to  the  so- 
called  "  internal  revenue  taxes,"  and  extended  in  little  or 
no  degree  to  the  war  taxes  imposed  on  imports ;  which 
last,  so  long  as  the  internal  revenue  taxes  continued  to  be 
levied  upon  every  maniifactured  product,  and  also  upon 
the  separate  constituents  of  such  product,  were  not  only 
wholly  justifiable,  but  absolutely  necessary,  if  the  fiscal 
burdens  of  the  war  between  the  domestic  producers  and 
their  foreign  competitors  were  to  be  equalized.  In  some 
instances,  through  oversight  or  neglect,  the  tariff  taxa- 
tion was  made  actually  less  upon  the  imported  article  than 
was  the  internal  taxation  on  the  domestic  product  manu- 
factured from  it;  one  illustration  of  which  was,  that  the 
charges  imposed  on  the  import  of  Manila  rope  were  fifty- 
six  dollars  per  ton,  while  the  internal  taxes  on  the  rope 
manufactured  in  the  United  States  from  the  Manila  fibre 
ranged  from  forty-eight  to  seventy-three  dollars  per  ton. 

It  soon  became  evident  that  the  country  could  not  en- 
dure for  any  great  length  of  time  the  war  system  of  taxa- 
tion, and,  furthermore,  ivould  not,  when  a  return  of  peace 
had  made  its  continuance  unnecessary.*     And,  pending 

*  The  imperative  necessity  of  a  speedy  abatement  of  the  in- 
ternal revenue  taxes  after  the  termination  of  the  war  finds  strik- 
ing illustration  in  the  following  examples  of  actual  experience. 
Thus  the  tax  of  six  per  cent,  levied  and  collected  during  the  fiscal 
year  1864-'65,  on  the  value  of  the  products  of  the  woollen  industry 


34       THE   THEORY  AND  PRACTICE  OP  TAXATION. 

its  modification  for  the  purpose  of  reduction,  a  desire  to 
evade  the  payment  of  taxes  everywhere  manifested  itself, 
until  it  seemed  at  one  time  as  if  the  whole  country  and 
the  Government  itself  were  becoming  corrupted  and  de- 
moralized. For  example,  the  revenue  receipts  from  the 
income  tax,  without  any  change  in  the  law,  declined  from 
$72,983,000  in  1866  to  $66,014,000  in  1867;  and  those 
from  a  uniform  tax  on  distilled  spirits,  from  about  $29,- 
000,000  in  1867  to  a  little  in  excess  of  $14,000,000  in  1868. 
It  was  under  such  circumstances  that  the  Eevenue 
Commission  entered  upon  its  prescribed  duties.  The  work 
of  investigation  devolved  mainly  on  its  chairman,  the 
second  member  being  debarred  by  age  and  feeble  health 
from  any  active  exertion;  while  the  third  assumed  from 
the  outset  that  the  best  and  most  feasible  way  of  meet- 
ing the  financial  difficulties  of  the  situation  was  to  abandon 
the  "  whole  system  "  (of  existing  taxation)  "  in  the  short- 
est time  consistent  with  the  general  interests  of  the  coun- 
try," and,  by  an  amendment  to  the  Federal  Constitution, 
authorize  and  require  the  Federal  Government  to  levy 
"  a  duty,  payable  in  lawful  money,  of  one  percentum  per 
annum "  on  the  income  of  all  interest-bearing  indebted- 
ness issued  by  the  United  States  and  payable  in  lawful 
money ;  and  "  a  duty,  payable  in  specie,  of  seven  tenths 
of  one  per  centum  on  the  principal  of  all  indebtedness 
of  the  United  States,  which  shall  belong  to  any  person 
or  corporation,  and  the  interest  on  which  may  be  payable 
in  specie."  He  was  also  of  the  opinion  that  such  taxes 
on  the  income  or  principal  of  the  indebtedness  of  the 
United  States  should  be  "  in  addition  to  any  ordinary 
duty  or  tax  equally  imposed  upon  all  incomes,  or  directly 
upon  all  personal  and  real  property  within  the  United 
States  subject  to  taxation."  * 

in  Massachusetts  alone  ($48,430,671)  was  equivalent  to  nearly 
twenty  per  cent  on  the  whole  capital  ($14,735,671)  invested  in  this 
business;  while  the  tax  on  the  value  of  boots  and  shoes  manu- 
factured in  the  same  State  during  the  same  year  ($52,915,243)  was 
equal  to  thirty  per  cent  on  the  whole  capital  emploj'ed  ($10,067,474). 
*  A  short  memoir  of  Mr.  Colwell  was  read  by  Henry  C.  Carey, 
in  1871,  before  the  American  Philosophical  Society.  A  list  of  his 
writings  is  given  at  the  close,  and  the  suggestions  quoted  are 
doubtless  in  Financial  Suggestions  and  Remarks,  published  in  1867. 
I  have  been  unable  to  see  a  copy  of  this  pamphlet,  or  to  trace  any 
writing  of  Mr.  Hayes  embodying  the  proposition  in  the  text. 


WANT,  OP  RELIABLE  STATISTICS.  35 

A  subsequent  report  to  this  effect  was  not  received  with 
any  marked  disfavour  by  the  general  public,  and  had  the 
indorsement  of  not  a  few  leading  American  bankers  and 
capitalists.  As  the  average  annual  rate  of  interest  accru- 
ing on  the  market  price  of  the  gold  bonds  issued  by  the 
United  States  from  January,  1862,  to  January,  1866, 
was  8.82  per  cent,  and  on  investments  in  the  debt  of  the 
United  States  payable  in  lawful  money,  from  1863  to  1866, 
was  10.68  per  cent,  the  proposition  to  levy  a  tax  of  one 
per  cent  on  the  income  or  principal  of  the  same  did  not 
appear  unreasonable,  especially  in  the  case  where  no  ex- 
emption from  taxation  was  stipulated  in  the  contract  for 
these  issues.  But  neither  the  author  of  the  report  nor 
its  indorsers  could  have  anticipated  that  within  little  more 
than  five  years  after  it  was  submitted  to  Congress,  the 
Federal  Government  could  have  borrowed  $185,000,000 
at  four  and  a  half  per  cent  interest;  and  that  twenty-five 
3^ears  afterward  would  be  able  to  renew  a  debt  of  $25,- 
364,500  at  two  per  cent  per  annum,  or  at  a  rate  fifty  per 
cent  less  than  loans  on  the  best  corporate  or  private  securi- 
ties would  have  at  the  same  time  commanded. 

The  method  of  prosecuting  the  work  contemplated  by 
Congress  of  the  commission,  was  at  the  outset  a  matter  of 
no  little  embarrassment.  There  was  practically  no  ma- 
terial or  basis  to  work  on,  except  the  bare  statutes  au- 
thorizing war  taxes,  and  no  official  collection  of  these  was 
published  by  the  Government  until  two  years  after  the 
commencement  of  the  war.  There  was  no  bureau  of  sta- 
tistics in  the  Treasury,  and  in  this  department  of  the 
Government  the  officials  to  whom  was  assigned  the  duty 
of  collecting  and  publishing  reliable  data  relative  to  the 
trade  and  commerce  of  the  country  were  untrained.  No 
full  and  reliable  statistics  concerning  any  branch  of  trade 
or  industry  in  the  United  States,  with  possibly  a  very  few 
exceptions,  were  then,  or  ever  had  been,  available.  The 
Treasury  received  returns  of  the  aggregate  of  revenue  col- 
lected and  the  sources  whence  it  was  derived;  but  these 
returns  were  rarely,  if  ever,  accompanied  by  any  sugges- 
tions, derived  from  administrative  experience,  of  any 
value.  The  commercial  returns  from  the  customs  were 
hardly  worth  the  paper  on  which  they  were  written.  Thus, 
for  example,  when  the  duty  on  the  importation  of  coffee 


36       THE  THEORY  AND  PRACTICE  OP  TAXATION. 

came  up  for  consideration  as  a  source  of  revenue,  the  value 
of  the  coffee  imported  during  the  fiscal  year  1864-'65  was 
officially  returned  at  ten  and  a  half  cents  per  pound,  while 
its  average  invoice  price,  according  to  the  trade  of  New 
York  for  the  same  period,  was  not  less  than  thirteen  cents. 
Again,  according  to  the  Treasury  statement,  the  aggre- 
gate imports  of  coffee  for  the  same  year  were  104,316,581 
pounds.  Of  this  amount  82,353,000  pounds,  which  were 
retained  for  domestic  consumption,  had  a  returned  value 
of  only  six  and  four  tenths  cents  per  pound,  while  the 
value  of  21,902,000  pounds  of  the  same  imports  which 
were  exported  during  the  same  year  had  the  extraordinary 
value  of  nearly  twenty-five  cents  per  pound.  For  the  year 
1863  the  Treasury  reported  an  aggregate  import  of  spirits 
distilled  from  grain  of  1,064,576  gallons,  but  of  this  quan- 
tity only  45,393  gallons  were  entered  at  the  ports  of  Bos- 
ton, New  York,  Philadelphia,  Baltimore,  and  San  Fran- 
cisco, leaving  an  inferential  import  of  1,019,183  gallons  at 
other  ports  of  the  loyal  States  that  practically  had  no 
foreign  commerce. 

In  the  Bureau  of  Internal  Revenue  a  better  system  pre- 
vailed; but  this  department  of  the  Treasury  being  always 
overburdened  with  work,  and  its  service  largely  rendered 
by  assessors  and  collectors  who  were  destitute  of  business 
training,  contributed  but  little  in  the  way  of  deductions 
from  experience.  It  had,  moreover,  at  one  time  as  its  head 
an  official  who  subsequently  in  a  higher  position  refused 
to  allow  data  to  be  collected  in  respect  to  certain  taxes, 
on  the  ground  that  the  less  the  people  knew  about  such 
matters  the  better  it  was  for  the  Treasury. 

Another  great  source  of  difficulty  experienced  by  the 
commission  in  conducting  investigations  with  a  view  of 
arriving  at  any  correct  estimates  of  the  prospective  revenue 
of  the  country  was  the  abnormal  condition  of  every  branch 
of  trade  and  industry  after  1861,  due  primarily  to  the  war 
disturbances,  and  next  to  the  frequent  alterations  in  the 
rates  of  taxation.  Every  advance  made  in  tariff,  or  in- 
ternal revenue  taxes,  was  anticipated  to  such  an  extent 
by  importers,  manufacturers,  dealers,  and  speculators  that 
the  Government  could  not  fairly  test  the  capacity  of  any 
one  of  its  great  and  legitimate  sources  of  revenue.  Thus, 
for  example,  the  almost  incredible  profits  made  by  reason 


METHOD   OF   INVESTIGATION.  3Y 

of  anticipation  of  the  large  and  repeated  advances  in  the 
taxes  on  distilled  spirits  have  already  been  pointed  out. 
Of  cigars,  in  like  manner,  it  was  estimated  that  above 
eighty  millions  had  been  made  and  stored  at  one  time  in 
the  city  of  New  York  alone,  in  anticipation  of  a  higher 
tax;  and  in  the  case  of  the  comparatively  insignificant 
article  of  matches,  on  which  the  tax  was  only  one  cent 
per  bunch,  the  stock  accumulated  in  anticipation  of  an 
advance  of  tax  was  so  large  that  it  was  not  entirely  ex- 
hausted for  a  subsequent  period  of  three  years. 

In  the  absence  of  any  specific  instructions,  either  from 
Congress  or  the  Secretary  of  the  Treasury,  it  was  difficult 
for  the  commission  to  form  an  opinion  as  to  the  best 
method  of  entering  upon  the  comprehension  and  reform  of 
a  scheme  of  taxation  which  embraced  almost  every  form 
of  tax  that  the  ingenuity  of  man  could  devise,  and  with 
an  incidence  on  almost  every  form  of  property,  business, 
profession,  or  occupation  that  was  capable  of  yielding 
to  the  State  a  revenue.  The  conclusion  arrived  at,  after 
no  little  consideration,  involved  a  complete  abandonment 
of  any  idea  of  endeavouring  to  enter  upon  and  comprehend 
the  whole  field  o£  inquiry  at  the  outset;  and  in  its  place, 
and  in  accordance  with  the  maxim  attributed  to  Emerson, 
that  the  eye  sees  only  what  it  brings  to  itself  to  see,  it  was 
determined  to  take  up  and  study  specifically  the  sources 
of  public  revenue  in  the  order  of  their  importance;  and 
give  no  attention  to  any  other  subject,  or  attempt  to 
theorize,  until  everything  that  domestic  experience  or  the 
experience  of  other  countries  could  teach  concerning  them 
had  been  made  familiar.  In  practically  carrying  out  this 
idea,  the  chairman  of  the  commission  put  himself  in  direct 
and  frequent  communication  with  revenue  officials  and 
representative  business  men  from  every  section  of  the 
country;  and  availing  himself  of  the  power  to  take  testi- 
mony, under  oath,  he  often  came  into  the  possession  of 
important  facts  which  in  daily  life  had  been  screened  from 
the  eye  of  the  public.  The  result  was  that  the  commis- 
sion presented  to  Congress,  through  the  Secretary  of  the 
Treasury,  in  January,  1866,  a  report  which  gave  for  the 
first  time  a  full,  clear,  and  exact  statement  of  the  curious 
and  complex  scheme  of  internal  and  customs  revenue  that 
had  been  evolved,  as  it  were,  out  of  the  financial  necessities 


329640 


38   THE  THEORY  AND  PRACTICE  OF  TAXATION. 

contingent  on  the  prosecution  of  a  gigantic  war :  which  in- 
volved the  raising  by  taxation  during  the  war  period  (and 
exclusive  of  loans)  of  an  aggregate  of  over  $2,000,000,000, 
and  a  not  infrequent  daily  disbursement  (expenditure) 
of  over  two  million  dollars;  and  in  addition  to  this  fea- 
ture the  report  contained  special  and  elaborate  exhibits 
on  distilled  spirits,  fermented  liquors,  petroleum,  cotton, 
tea,  coffee,  sugar,  spices,  proprietary  articles,  and  patent 
medicines  as  sources  of  Government  income,  with  esti- 
mates of  the  amount  of  revenue  which  the  Treasury  might 
annually  expect  if  taxation  at  various  rates  on  the  same 
was  to  be  continued ;  the  whole  being  really  the  first  prac- 
tical attempt  in  the  United  States  to  gather  and  use  na- 
tional statistics  for  great  national  purposes.* 

On  the  termination  by  statute  of  the  Revenue  Commis- 
sion, in  January,  1866,  its  chairman  was  appointed  to  an 
office  specially  created  by  Congress,  for  a  period  of  four 
years,  with  the  title  of  "  Special  Commissioner  of  the 
Revenue  "  of  the  United  States ;  and  the  duties  of  which 
were  thus  defined  by  statute : 

"  He  shall  from  time  to  time  report  through  the  Secre- 
tary of  the  Treasury  to  Congress,  either  irvthe  form  of  hill 
or  otherwise,  such  modifications  of  the  rates  of  taxation, 
or  of  the  methods  of  collecting  the  revenues,  and  such 
other  facts  pertaining  to  the  trade,  industry,  commerce, 
or  taxation  of  the  country  as  he  may  find  by  actual  observa- 
tion of  the  law  to  be  conducive  to  public  interest." 

In  this  office,  and  invested  with  large  powers,  its  in- 
cumbent entered  upon  the  work  of  co-operating  with  the 
appropriate  committees  of  Congress — "  Ways  and  Means  " 
of  the  House  and  "  Finance  "  of  the  Senate — in  recon- 
structing the  then  existing  and  extraordinary  system  of 
the  United  States  internal  revenue ;  and  under  his  initia- 
tion and  supervision  were  originated  almost  all  the  re- 
forms in  this  department  of  the  Government  that  were 
considered  or  enacted  by  Congress  between  the  close  of 
the  war  and  the  year  1870 ;  namely,  the  redrafting  of 
nearly  the  whole  body  of  complicated  and  often  conflicting 


*  Reports  of  a  Commission  appointed  for  a  Revision  of  the 
Revenue  System  of  the  United  States,  1865-'66;  Washington,  1866, 
p.  483.    Some  of  the  special  reports  were  issued  separately. 


LABOR  OF   THE   COMMISSIONER.  39 

statutes;  the  reduction  and  final  abolition  of  the  taxes  on 
crude  products — especially  cotton,  salt,  lumber,  petroleum, 
and  the  metals — and  most  of  the  taxes  on  manufactures; 
the  creation  of  supervisory  districts  and  the  appointment 
of  supervisors;  the  origination  of  the  use  of  stamps  for 
the  collection  of  taxes  on  distilled  spirits,  fermented 
liquors,  tobacco,  and  the  sales  of  stockbrokers  (the  last  in 
place  of  a  general  tax  of  one  twentieth  of  one  per  cent 
on  sales)  ;  and  the  creation  and  organization  of  the  Bureau 
of  Statistics  as  a  branch  of  the  national  Treasury.  These 
modifications  brought  the  internal  revenue  duties  within 
a  reasonable  compass,  introduced  sj^stems  where  the  want 
of  it  was  working  mischief,  and  by  their  ready  application 
in  administration  reconciled  the  people  to  a  maintenance 
of  important  sources  of  revenue  and  a  continuance  of 
taxes,  which  have  by  their  stability  and  steady  increase 
enabled  the  Government  to  meet  financial  exigencies  other- 
wise awkward  and  dangerous.  The  service  thus  rendered 
met  with  recognition  at  the  time  both  in  and  out  of  Con- 
gress, and  was  strongly  indorsed  by  those  most  interested 
— the  head  of  the  Treasury  and  the  industries  taxed.* 

The  work  of  taking  down  the  vast  and  complicated 
structure  of  internal  taxation,  which  had  been  built  up 
during  the  war,  having  been  once  seriously  entered  upon 
by  Congress  (in  1866),  it  was  prosecuted  so  vigorously 
that  in  the  comparatively  short  space  of  three  years  the 


*  "  I  do  not  believe  that  any  man  appointed  by  the  Government 
in  the  civil  war  has  done  for  his  country  more  Avork,  and  more 
valuable  work,  than  David  A.  Wells.  Into  the  financial  chaos 
resulting  from  the  war  he  threw  the  whole  weight  of  a  strong, 
clear  mind,  guided  by  an  honest  heart,  and  he  has  done  more,  in 
my  judgment,  to  bring  order  out  of  chaos  than  any  one  man  in 
the  United  States." — Speech  of  General  James  A.  Garfield,  Member 
of  Corifjress,  United  States  Bouse  of  Representatives,  July  13,  1868. 

"  There  are  few  of  my  official  acts  that  I  look  upon  with  more 
satisfaction  than  the  appointment  of  David  A.  Wells  to  be  Revenue 
Commissioner.  All  the  reports  that  were  made  by  him  exhibited 
the  most  careful,  painstaking,  and  intelligent  investigation.  In 
clearness  and  accuracy  of  statement,  and  in  logical  force,  they  have 
not  been  surpassed  on  either  side  of  the  Atlantic.  Their  ability 
was  admitted,  even  by  those  who  disagreed  with  the  writer  in 
his  conclusions." — Men  and  Measures  of  Half  a  Century,  by  Hugh 
McCulloch,  Secretary  of  the  Treasury  during  the  Administrations 
of  Presidents  Lincoln,  Johnson,  and  Arthur. 


40       THE  THEORY  AND  PRACTICE  OP  TAXATION. 

aggregate  annual  receipts  from  such  taxes  were  reduced 
from  $310,906,000  in  1866  to  $160,039,000  in  1869— a 
reduction  of  $150,867,000— and  to  $102,644,000  in  1873, 
a  further  reduction  of  $57,395,000;  while  the  sources  of 
revenue,  the  annual  receipts  from  each  one  of  which  were 
specifically  reported,  were  reduced  from  about  two  hun- 
dred and  seventy-five  in  1866  to  nominally  sixty-six  in 
1872;  but  practically  to  three — distilled  spirits,  fermented 
liquors,  and  tobacco — the  receipts  from  which  alone  in  1893 
were  $150,865,000  as  compared  with  $91,464,000  in  1872. 
It  should,  however,  be  noted  that  this  remarkable  increase 
of  revenue,  coincident  with  a  large  reduction  in  the  num- 
ber of  taxed  articles,  was  due  mainly  to  an  increase  of  con- 
sumption consequent  upon  an  increase  of  population  dur- 
ing the  period  under  consideration  (26,230,000)  rather 
than  to  any  increase  in  the  rate  of  taxes  imposed  upon  the 
remaining  sources  after  1872. 

Of  many  other  curious  and  instructive  economic  ex- 
periences, consequent  upon  the  rapid  and  radical  changes 
in  the  fiscal  policy  of  the  United  States  during  the  period 
under  consideration,  the  following  seem  especially  worthy 
of  notice:  The  first  abatement  or  repeal  of  internal  taxa- 
tion on  various  articles  after  the  war — to  the  extent  of 
about  fifty  millions  in  1866 — was  not  attended  with  any 
general  and  immediate  reduction  in  the  prices  of  the  arti- 
cles relieved,  corresponding  to  the  reduction  of  taxation, 
but  with  rather  an  increase  of  prices.  The  explanation 
of  this  circumstance  was,  that  the  continuance  of  the  heavy 
Avar  taxation,  for  a  period  after  the  extensive  war  demands 
of  the  Government  for  various  commodities  had  ceased, 
had  diminished  their  production  to  a  point  below  what 
would  have  been  the  normal  consumption  of  the  country; 
and  that,  therefore,  prices  increased  concurrently  with  the 
abatement  of  taxes  and  a  renewal  of  demand.  Such  a  re- 
sult was,  however,  but  temporary,  and  the  condition  of 
affairs  was  soon  reversed.  The  supply  of  manufactured 
products  quickly  became  equal  to  or  exceeded  demand. 
The  price  of  products  fell  faster  than  the  price  of  either 
labour  or  capital,  and  taxation,  which  formerly  had  been 
paid  wholly  from  profit,  now  fell  mainly  upon  capital. 
The  general  result  was  a  year  (1867)  of  great  industrial 
and  commercial  depression. 


APPLICATION  OP  STAMPS.  41 

The  enlarged  use  of  stamps  as  machinery  for  the  col- 
lection of  taxes,  and  their  novel  application  to  fermented 
liquors  and  distilled  spirits,  were  attended  with  very  strik- 
ing results.  In  the  case  of  fermented  liquors  (beer),  it 
was  established  almost  beyond  doubt  by  the  Eevenue  Com- 
mission that  previous  to  1866  the  Government  was  de- 
frauded of  its  legitimate  revenue  to  an  extent  of  forty 
per  cent,  involving  an  absolute  annual  loss  of  about 
$6,400,000.  The  adoption,  with  no  little  hesitation  by 
Congress  in  1866,  of  the  principle,  that  the  payment  of 
the  tax  on  this  commodity  should  be  effected  by  the  pur- 
chase and  affixing  a  stamp  to  each  barrel  sold  and  removed 
from  the  place  of  manufacture,  with  the  additional  re- 
quirement that  the  stamp  should  be  cancelled  by  the  re- 
tailer or  consumer  at  once,  increased  the  revenue  from 
$3,657,000  in  1865  to  $5,115,000  in  1866— the  year  of 
first  application — and  to  $5,819,000  in  1867;  and  ever 
since  has  proved  most  effective  and  satisfactory. 

A  recommendation  to  make  use  of  stamps  for  the  col- 
lection of  taxes  on  tobacco  was  acceded  to  by  Congress  in 
respect  to  smoking  tobacco  and  snuff,  but  was  refused  in 
respect  to  chewing  tobacco,  cigarettes,  and  cigars ;  in  the 
latter  case  on  the  assumption  that  it  was  impracticable  to 
affix  an  adhesive  paper  stamp  on  the  body  of  a  cigar,  while 
the  "  trade,"  not  long  afterward,  and  at  its  own  volition, 
demonstrated  its  entire  feasibility.  Had  the  recommen- 
dation in  this  particular  found  favour,  it  would  have  re- 
sulted in  an  accretion  of  many  millions  to  the  national 
Treasury,  a  relief  from  espionage  and  other  frictions  to 
the  trade,  and  a  larger  diminution  of  administrative  ex- 
penditures both  to  the  trade  and  the  Government. 

The  experience  of  the  Federal  Government  in  its  taxa- 
tion of  distilled  spirits  is  extraordinary,  and  so  replete 
with  instruction  to  economists,  moralists,  and  social  re- 
formers as  to  merit  a  more  extended  notice. 

The  product  of  distilled  spirits  in  the  United  States  • 
for  the  year  1860,  as  returned  by  the  census,  was  about 
90,000,000  gallons.  It  would  be  an  error  to  assume  that 
all  of  this  immense  production  of  spirits  was  used  for 
intoxicating  purposes,  or  in  the  way  of  stimulants,  inas- 
much as  the  extreme  cheapness  of  spirits  or  alcohol  in  the 
United  States  during  the  period  under  consideration  occa- 
4 


42       THE   THEORY   AND   PRACTICE   OP  TAXATION. 

sioned  their  employment  iu  large  quantities  for  various 
industrial  purposes;  which  uses  were  subsequently  in  a 
great  degree  discontinued  when  the  price  of  spirits  was 
enhanced  from  one  hundred  to  one  thousand  per  cent  and 
upward  by  Federal  taxation.  For  1860-'61,  the  year  pre- 
ceding the  war,  the  average  price  of  proof  spirits  in  Cin- 
cinnati was  14.40  cents  per  gallon. 

From  1823  to  1862  distilled  spirits,  in  common  with 
all  other  domestic  industrial  products,  were  exempt  from 
Federal  taxation.  In  the  latter  year,  under  the  necessity 
for  revenue  occasioned  by  the  war.  Congress  imposed  a 
tax  of  twenty  cents  per  proof  gallon  on  all  distilled  spirits 
of  domestic  production.  This  tax  went  into  effect  on 
the  1st  of  September,  1862,  and  continued  in  force  until 
March,  1864.  The  total  revenue  derived  from  this  source, 
including  the  receipts  from  licenses  for  rectifying,  vend- 
ing, and  the  like,  for  the  fiscal  year  1863,  was  $5,176,530. 
The  receipts  from  the  direct  tax  on  the  spirit  itself  were 
$3,229,990,  indicating  a  domestic  production  of  only 
16,149,954  gallons  as  compared  with  a  production  of 
'90,000,000  gallons  returned  under  the  census  of  1860, 
three  years  previous.  The  explanation  of  this  result  is 
to  be  found  in  the  fact  that  a  large  amount  of  whisky 
was  manufactured  in  anticipation  of  this  low  tax,  and  that 
there  were  doubtless  some  evasions  of  the  tax  after  it  was 
enacted — conditions  that  were  repeated,  as  will  be  pres- 
ently shown,  in  a  greater  degree  on  every  occasion  when 
an  advance  in  the  tax  was  enacted. 

The  tax  of  twenty  cents  continued  in  force  until  March 
7,  1864,  when  the  rate  was  advanced  to  sixty  cents  per 
gallon.  The  revenue  accruing  under  these  two  rates  for 
the  year  ending  June  30,  1864,  was  $28,431,797,  and  the 
number  of  gallons  returned  as  having  been  assessed  was 
85,295,393.  The  striking  discrepancy  between  the  num- 
ber of  gallons  taxed  in  1864  at  twenty  and  sixty  cents  and 
the  number  taxed  the  previous  year  (1863)  at  twenty 
cents  again  finds  explanation  in  the  fact  that  when  it 
became  evident  to  the  distillers  that  the  fiscal  necessities 
of  the  Government  would  soon  compel  an  advance  in  the 
tax  upon  their  product,  and  that  such  increase  would  not 
be  made  applicable  to  stocks  on  hand  on  which  the  lower 
rates  had  been  assessed  and  paid,  they  pushed  their  pro- 


TAXATION   OF   DISTILLED   SPIRITS.  43 

duction  to  the  uttermost  in  order  that  they  inight  take 
advantage  of  the  great  increase  in  the  market  price  of  all 
spirits  after  the  advanced  rates  had  taken  effect ;  all  which 
anticipations  were  fully  realized.  Thus,  of  the  85,295,393 
gallons  on  which  the  Internal  Revenue  Bureau  assessed 
and  collected  the  spirit  tax  for  1864 — 69,000,000  in  excess 
of  the  product  of  the  preceding  year — at  least  70,000,000 
gallons  were  manufactured  prior  to  the  7th  of  March  and 
were  released  from  Government  control  by  the  payment  of 
the  twenty-cent  tax  only;  and  as  after  the  7th  of  March, 
1864,  the  market  price  of  the  greater  part  of  this  in- 
creased product,  which  had  not  been  allowed  to  pass  into 
consumption,  was  advanced  in  accordance  with  the  ad- 
vance in  the  tax — i.  e.,  forty  cents  per  gallon — it  is  clear 
that  $28,000,000  at  least  were  thus  at  once  legislated  into 
the  pockets  of  the  distillers  and  speculators  concerned. 

Again,  immediately  after  the  imposition  of  the  sixty- 
cent  rate  in  March,  1864,  nearly  all  the  distilleries  once 
more  suspended  operation;  the  country  was  acknowledged 
to  be  overstocked  with  tax-paid  whisky,  and  the  Govern- 
ment almost  ceased  to  collect  taxes  upon  its  manufacture. 
In  May,  however,  the  project  for  a  further  increase  in  the 
rates  began  to  be  again  agitated  in  Congress,  and  as  soon 
as  its  realization  became  probable,  all  the  distilleries 
speedily  resumed  operations.  How  great  at  that  time  was 
the  capacity  of  the  loyal  States  for  production  may  be 
inferred  from  the  circumstance  that  the  number  of  dis- 
tilleries in  the  country,  which  according  to  the  census  of 
1860  was  1,138,  had  increased  in  1864  to  2,415. 

On  the  1st  of  July,  1864,  the  tax  was  again  advanced 
from  sixty  cents  to  a  dollar  and  a  half  per  gallon;  and 
during  that  month  the  entire  product  of  the  country  of 
which  the  revenue  officials  could  take  cognizance  was  only 
697,099  gallons.  How  great  a  "  stock  on  hand,"  the  result 
of  manufacturing  under  the  twenty  and  sixty  cent  rates 
of  tax,  was  carried  over  the  1st  of  July  and  experienced 
the  advance  of  ninety  cents  per  gallon  in  market  price  in 
consequence  of  the  advance  in  the  tax  from  sixty  cents 
to  a  dollar  and  a  half,  can  not  be  accurately  known;  but 
60,000,000  gallons  would  certainly  be  a  low  estimate;  and 
on  this  amount  the  profit  that  accrued  to  private  interests 
was  at  least  $50,000,000. 


44   THE  THEORY  AND  PRACTICE  OF  TAXATION. 

On  the  1st  of  January,  1865  (the  succeeding  year),  the 
tax  was  further  advanced  to  two  dollars  per  proof  gallon, 
when  all  the  operations  above  described  were  repeated, 
with  all  the  benefits  to  private  or  speculative  interests  de- 
rived from  former  experiences,  and  a  consequent  very  large 
extension  of  the  sphere  of  participants  in  the  resulting 
profits. 

In  short,  all  the  available  evidence  indicates  that  the 
profits  realized  by  distillers,  dealers,  and  speculators, 
through  congressional  legislation  having  reference  to  the 
taxation  of  distilled  spirits  from  July  1,  1862,  to  January 
1,  1865 — a  period  of  two  and  a  half  years — and  exclusive 
of  any  gains  accruing  from  evasions  of  taxes,  and  with 
every  allowance  for  overestimates,  must  have  approximated 
$100,000,000. 

After  the  establishment  of  the  two-dollar  rate  on  the 
1st  of  January,  1865,  there  was  again  a  period  of  inactivity 
on  the  part  of  those  interested  in  the  manufacture  of  dis- 
tilled spirits.  The  stocks  on  hand,  manufactured  in  an- 
ticipation of  the  advances  in  rates,  were  very  large,  and, 
the  markets  being  oversupplied,  there  was  little  legitimate 
inducement  for  activity  on  the  part  of  distillers.  The 
profits  realized  or  made  prospectively  certain  had  been, 
moreover,  enormous,  and  no  further  advance  in  the  rate 
of  tax  could  be  anticipated.  Under  such  circumstances 
there  was  an  apparent  disposition  on  the  part  of  mami- 
facturers  and  speculators  to  wait  and  see  what  develop- 
ments in  legislation  and  business  would  follow  the  termi- 
nation of  the  war  in  favour  of  the  Union,  which  was  then 
everywhere  recognised  as  approximately  certain.  These 
developments  were  not  long  in  manifesting  themselves. 

The  tax  of  two  dollars  per  proof  gallon  (amounting 
to  more,  than  1,500  per  cent  on  the  average  cost  of  produc- 
tion) and  the  enormous  profits  contingent  upon  the  eva- 
sion of  the  law,  coupled  with  the  abundant  opportunity 
which  the  law  through  its  imperfections,  and  the  vast 
territorial  area  of  the  country,  offered  for  evasion,  created 
a  temptation  not  to  be  resisted.  This  view  was  taken  by 
the  Revenue  Commission  in  a  report  to  Congress  through 
the  Secretary  of  the  Treasury  in  February,  1866 ;  *    and 

*  This  constitutes  the  fifth  of  the  special  reports  contained  in 
the  Reports  of  the  Commission,  1865-'66. 


TWO-DOLLAR  TAX  ON  SPIRITS.  45 

the  chairman  of  the  commission,  after  a  thorough  investi- 
gation of  the  subject  and  the  collection  and  presentation 
of  a  large  amount  of  evidence,  expressed  the  opinion  that 
the  attempt  to  collect  a  two-dollar  tax  vi^as  utterly  im- 
practicable, and  that  the  longer  it  was  retained  the  less 
would  be  the  revenue  and  the  greater  the  corruption.  He 
also  coupled  this  opinion  with  a  recommendation  that  a 
tax  of  fifty  cents  per  proof  gallon,  with  a  judicious  license 
system  for  rectifiers  and  dealers,  be  substituted  as  likely 
to  be  most  productive  of  revenue  and  most  efficient  for 
the  prevention  of  illicit  distilling  and  other  revenue 
evasions. 

This  report,  although  attracting  much  attention  by 
reason  of  the  singular  revenue  experiences  of  the  preced- 
ing four  years  which  it  detailed  (and  which  the  public, 
with  its  thought  concentrated  on  the  results  of  the  war, 
had  in  a  great  degree  overlooked),  found  little  favour  in 
respect  to  its  recommendation  of  tax  abatement;  and  the 
general  sentiment  both  in  and  out  of  Congress  was  ex- 
pressed by  a  leading  member  of  the  House  of  Representa- 
tives, who  publicly  declared  that  "  he  was  not  ready  ta 
admit  that  the  nation  which  had  put  down  siich  a  great 
rebellion  at  the  cost  of  so  much  blood  and  treasure  could 
not  collect  a  tax  of  two  dollars  a  gallon  on  whisky."  * 
The  two-dollar  tax  therefore  was  allowed  to  remain  in 
force,  and  the  tax  experiences  of  the  United  States  from 
1865  to  1869  inclusive,  in  respect  to  spirits,  viewed  from 
the  standpoint  of  finance,  economics,  and  morals,  con- 
stitute one  of  the  most  interesting,  instructive,  and  dis- 
graceful chapters  in  its  history.  Under  the  strong  tempta- 
tions of  large. and  almost  certain  gains,  men  rushed  into 
schemes  for  defrauding  the  revenue  with  the  zeal  of  en- 
thusiasts for  new  gold  fields;  and  the  ingenuity  of  the 
American  people  has  never  had  more  striking  illustrations 
than  were  offered  in  their  devices  for  evading  the  tax  and 
providing  for  security  against  detection  and  punishment 
in  so  doing.  The  parties  concerned  in  these  transactions 
also  showed  throughout  more  ability  than  Congress  and 

*  Of  the  then  leading  members  of  Congress,  only  two — the  late 
President  Garfield  and  Hon.  W.  B.  Allison,  both  members  of  the 
House  of  Representatives — indorsed  the  recommendation  of  the 
commissioner  at  the  outset. 


46       THE  THEORY  AND   PRACTICE  OF   TAXATION. 

more  shrewdness  than  the  revenue  department  of  the 
national  Treasiir}';  and  at  a  later  period  a  Secretary  of 
the  Treasury  was  obliged  to  resort  to  the  use  of  a  cipher 
for  his  telegraphic  and  written  correspondence,  in  order 
to  prevent  the  frustration  of  his  plans  for  the  enforce- 
ment of  the  laws  by  Treasury  officials  who  were  specially 
charged  with  their  administration.  The  evidence  in  part 
confirmatory  of  these  statements  is  as  follows : 

The  revenue  directly  collected  during  the  fiscal  year 
1866  (the  first  full  year  under  the  two-dollar  tax)  from 
spirits  distilled  from  other  materials  than  fruits  *  was 
$29,198,000,  and  in  1867  $28,296,000,  indicating  an  an- 
nual product  respectively  of  14,599,000  and  14,148,000 
gallons.  But  during  the  succeeding  year,  1868,  with  no 
apparent  reason  for  any  diminution  in  the  national  pro- 
duction and  consumption  of  spirits,  and  with  no  increase, 
but  rather  a  diminution,  in  the  volume  of  imported  spirits, 
the  total  direct  revenue  from  the  same  source  was  but 
$13,419,092,  indicating  a  production  of  only  6,709,546 
gallons. 

As  the  consumption  of  distilled  spirits  in  this  latter 
year  was  probably  not  less  than  50,000,000  gallons,  and  as 
out  of  this  the  Government  collected  a  tax  upon  less  than 
7,000,000,  the  sale  of  the  difi'erence  at  the  current  market 
rates  of  the  year,  less  the  average  cost  of  production  (even 
if  estimated  as  high  as  thirty  cents  in  currency),  must 
have  returned  to  the  credit  of  corruption  a  sum  approxi- 
mating $80,000,000. 

Another  curious  feature  developed  was,  that  the  num- 
ber of  distilleries  in  the  country  increased  just  in  propor- 
tion as  the  tax  on  spirits  was  augmented;  the  inducement 
of  the  great  profit  to  be  obtained  from  a  high  rate  of  tax 
— the  two-dollar  rate  especially — undoubtedly  tempting 
many  to  engage  in  illicit  manufacturing  who  would  be 
unwilling  to  do  so  with  a  certainty  of  realizing  a  much 
smaller  rate  of  profit.  Of  many  curious  examples  of  evi- 
dence to  this  effect,  the  following  reference  is  particularly 
interesting:  In  the  eighth  collection  district  of  the  State 
of  iSTew  York  there  was,  before  the  internal  revenue  law 

*  The  revenue  derived  from  the  taxation  of  spirits  distilled  from 
fruits  has  ahvavs  been  comparatively  small:  $283,499  in  1866; 
$868,145  in  1867.' 


FRAUD   AND   EVASION.  47 

went  into  operation  in  1863,  but  one  distillery.  When  the 
first  tax  of  twenty  cents  per  gallon  was  imposed,  six  addi- 
tional distilleries  were  started.  Under  the  sixty-cent  rate 
about  one  dozen  were  in  operation.  But  this  number, 
under  the  two-dollar  tax,  increased  to  about  forty.  Fur- 
thermore, the  tax  collected  at  one  distillery  in  the  same 
district  in  one  month  in  186-i,  under  the  sixty-cent  tax, 
was  one  third  more  than  was  paid  in  the  aggregate  by 
thirty  distilleries  in  the  district  in  the  eight  months  suc- 
ceeding Xovember,  1865,  when  the  tax  was  two  dollars; 
or,  to  state  it  differently,  one  distillery  in  one  month  in 
1864  paid  $58,819,  at  sixty  cents  per  gallon,  while  thirty 
distilleries  in  eight  months  in  1866  paid,  at  two  dollars 
per  gallon,  only  $33,66-1.  For  the  entire  country  the  num- 
ber of  licensed  distilleries,  which  in  1864  was  2,415,  was 
returned  in  1868  at  4,731 — an  increase  of  nearly  100  per 
cent  in  the  short  space  of  four  years. 

Thus  confronted  with  positive  evidence  of  astounding 
frauds  which  the  Government  that  put  down  a  great  re- 
bellion virtually  confessed  that  it  could  not  prevent,  and 
a  steadily  diminishing  revenue  from  what  ought  to  have 
been  a  steadily  increasing  source,  Congress  finally  became 
thoroughly  alarmed,  and,  acceding  to  the  recommenda- 
tion of  the  Special  Commissioner  of  the  Revenue,  reduced 
(in  July,  1868)  the  direct  tax  on  distilled  spirits  from 
■^wo  dollars  to  fifty  cents  per  proof  gallon.* 

*  The  statement  that  the  tax  on  distilled  spirits  was  reduced 
from  two  dollars  to  fifty  cents  per  gallon  in  1868  has  been  criticised 
!see  letter  of  United  States  Commissioner  of  Internal  Revenue, 
embraced  in  report  of  the  Secretary  of  the  Treasury  for  1893)  as 
not  in  accordance  with  the  statement  that  the  tax  imposed  in  the 
above-mentioned  year  was  not  fifty  but  seventy  cents  per  gallon. 
The  only  warrant  for  such  criticism  to  be  found  in  the  circum- 
stance that  the  statute  of  1868,  which  fixed  the  direct  tax  on  spirits 
at  fifty  cents  per  gallon,  and  none  other,  also  contained  separate 
and  independent  provisions  imposing  licenses,  taxes  on  capacity 
of  stills,  and  on  the  sales  of  dealers,  with  some  modification  of  the 
fees  of  gaugers  and  storekeepers ;  and  that  these  additional  assess- 
ments brought  up  the  tax  from  fifty  to  seventy  cents  per  gallon. 
But  this  reasoning  overlooked  two  essential  features  of  the  act — 
namely,  that  the  direct  tax  on  every  proof  gallon  must  be  paid 
by  the  distiller,  owner,  or  other  person  having  possession  thereof, 
before  removal  from  the  distillery  or  warehouse;  and  next,  that 
none  of  the  indirect  and  supplementary  taxes  could  be  assessed 
or  collected  until  after  the  direct  tax    (of  fifty  cents)    had   been 


48       THE   THEORY  AND  PRACTICE  OP  TAXATION. 

The  results  of  such  legislation  were  immediate  and 
most  remarkable.  Illicit  distillation  practically  ceased  the 
very  hour  the  new  law  came  into  operation.  Industry 
and  the  arts  experienced  a  large  measure  of  benefit  from 
the  reduction  in  the  cost  of  spirits ;  while  the  Government 
collected  during  the  second  year  of  the  continuance  of  the 
new  rate  and  system,  with  comparatively  little  friction, 
three  dollars  for  every  one  that  was  obtained  during  the 
last  year  of  the  two-dollar  tax.  Assuming,  as  is  war- 
ranted, that  with  a  continuance  of  the  two-dollar  tax 
there  would  have  been  no  increase  in  the  revenue  from 
distilled  spirits  beyond  what  accrued  in  1868 — the  last 
year  of  its  existence — the  gain  in  revenue  to  the  Govern- 
ment in  the  succeeding  two  years  from  the  adoption  of 
the  fifty-cent  rate  was  at  least  sixty  million  dollars.  Fur- 
thermore, but  for  the  injudicious  but  popular  speech  (to 
which  reference  has  been  made)  at  an  opportune  mo- 
ment in  committee  by  a  statesman  who  had  bestowed  but 
little  attention  to  the  subject,  the  reduction  of  the  tax 
from  two  dollars  to  fifty  cents  per  proof  gallon  would 
undoubtedly  have  been  anticipated  by  a  year,  and  attended 
with  like  gainful  results.  The' cost  of  this  speech,  there- 
fore, to  the  national  Treasury  may  be  rightfully  estimated 
as  at  least  ten  million  dollars.  The  record  of  this  chap- 
ter of  the  tax  experience  of  the  United  States  also  for- 
cibly illustrates  the  impolicy  and  disaster  of  embody- 
ing  any   fiscal   policy  in   statute   enactments   without   a 

paid ;  the  license  taxes,  for  example,  varying  according  to  the  prod- 
uct of  the  distillery,  and  payable  in  block,  at  different  specified 
times.  A  great  and  novel  object  here  soiight  for — namely,  of  dimin- 
ishing the  inducements  to  fraud,  by  directing  the  collection  of 
the  direct  and  supplementary  taxes  on  spirits  as  respects  persons, 
places,  and  times — was  fully  achieved ;  for,  although  the  aggre- 
gate of  the  direct  and  indirect  tax  on  spirits  undoubtedly  in- 
creased their  cost  to  their  final  consumers,  the  largest  possible 
gain  to  the  distiller  from  the  evasion  of  the  separate  and  compara- 
tively small  indirect  taxes  which  contributed  to  this  increase, 
even  apart  from  the  risks  of  punishment  involved,  M'ere  too  small 
to  be  worthy  of  his  attention.  The  effort,  therefore,  to  attempt 
to  minimize  by  sophistical  reasoning  the  remarkable  effect  of  the 
reduction  in  1S68  of  the  tax  on  distilled  spirits  to  fifty  cents 
has  no  rightful  claim  for  consideration,  and  unquestionably  was 
prompted  by  a  very  general  but  unwise  public  sentiment,  that  it 
is  desirable  always  to  subject  the  manufacture  and  sale  of  spiritu- 
ous and  fermented  liquors  to  exceptionally  high  rates  of  taxation. 


INCREASE  OF   SPIRIT  TAX.  49 

previous  study  and  full  comprehension  of  all  the  elements 
involved. 

For  the  first  but  incomplete  fiscal  year  (1869)  under 
the  fiftv-cent  tax  the  revenue  increased  to  the  extent  of 
nearly  $20,000,000,  or  from  $14,290,000  in  1868  to  $33,- 
735,000  in  1869;  or,  including  all  taxes  on  the  manu- 
facture and  sale  of  distilled  spirits,  licenses,  etc.,  from 
$18,655,000  in  1868  to  $45,071,000  in  1869.  During  the 
next  fiscal  vear  (1870)  there  was  a  further  increase  in 
the  total  revenue  of  $10,534,864,  or  from  $45,071,000  in 
1869  to  $55,606,094  in  1870. 

The  specific  tax  on  distilled  spirits  of  fifty  cents  per 
proof  gallon  remained  in  force  from  July,  1868,  to  Au- 
gust, 1872,  a  period  of  a  little  more  than  four  years.  Dur- 
ing this  period  the  tax  was  assessed  and  collected  on  an 
average  production  of  67,175,822  proof  gallons  per  annum, 
yielding  an  average  annual  revenue  of  about  $34,000,000, 
and  indicating  an  average  annual  consumption  for  all  pur- 
poses of  the  country  of  about  1.65  proof  gallons  per  capita. 
For  the  period  of  four  years  immediately  preceding  the 
fiscal  year  1869,  under  a  tax  of  two  dollars  per  proof  gallon 
for  three  years,  and  a  dollar  and  a  half  and  two  dollars  for 
one  year  (1865),  the  tax  was  assessed  and  collected  on  an 
average  annual  production  of  only  about  13,300,000  proof 
gallons  per  annum,  yielding  an  average  annual  revenue  of 
about  $21,727,000,  and  indicating  an  average  annual  con- 
sumption of  only  about  0.38  proof  gallon  per  capita. 

But,  notwithstanding  these  satisfactory  results,  the  law 
authorizing  the  reduction  of  the  tax  from  two  dollars  to 
fifty  cents  per  proof  gallon  had  hardly  become  operative 
when  agitation  commenced  for  its  repeal  or  modification. 
Speculators  had  the  idea  that  the  old  scheme  of  increas- 
ing the  tax  after  a  little  lapse  of  time,  without  making  the 
increase  applicable  to  stocks  on  hand,  was,  with  its  gain- 
ful prospects,  again  within  the  range  of  possibilities ;  while 
very  many  extreme  advocates  of  temperance,  untaught  by 
and  caring  nothing  for  the  record  of  recent  experience, 
were  inclined  to  regard  the  new  and  comparatively  low 
tax  as  impolitic  and  in  the  light  of  the  removal  of  a  bar- 
rier against  the  spread  of  intemperance.  These  and  other 
arguments  proved  sufficiently  potent,  and  in  June,  1872, 
Congress,  by  an  act  which  took  effect  in  the  following 


50       THE  THEORY   .AND   PRACTICE  OF  TAXATION. 

August,  increased  the  gallon  tax  to  seventy  cents,  and 
subsequently,  in  March,  1875,  raised  the  rate  to  ninety 
cents  per  gallon,  and  in  August,  189-i,  further  increased 
it  to  a  dollar  and  ten  cents,  the  present  rate. 

It  is  not  necessary  to  recall  that  the  experiences  which 
were  attendant  upon  every  advance  of  the  tax  on  spirits 
from  its  first  imposition  in  18G3  to  18G8  were  repeated 
subsequently  in  1872  and  in  1875,  when  the  increased 
rates  of  seventy  and  ninety  cents  were  respectively  en- 
acted; those  of  the  latter  date  being  remarkable  from  the 
circumstance  that  the  frauds  upon  the  revenue,  which 
were  enormous,  were  more  directly  brought  home  to  high 
officials  of  the  Government  than  at  any  former  period, 
and  constitute  a  chapter  in  the  history  of  government  by 
the  people  which  the  people  may  well  wish  forgotten. 

The  above  review  of  the  experiences  of  the  United 
States  prior  to  1869,  in  attempting  to  enforce  the  collec- 
tion of  an  excessively  high  tax  on  the  production  and 
consumption  of  distilled  spirits,  is  mainly  valuable  in  this 
connection  from  the  economic  and  moral  lessons  deducible 
from  it,  which  may  in  brief  be  summarized  as  follows: 

Whenever  a  government  imposes  a  tax  on  any  product 
of  industry  so  high  as  to  sufficiently  indemnify  and  reward 
an  illicit  or  illegal  production  of  the  same,  then  such 
product  will  be  illicitly  or  illegally  manufactured;  and 
when  that  point  is  reached,  the  losses  and  penalties  con- 
sequent upon  detection  and  conviction — no  matter  how 
great  may  be  the  one  or  how  severe  the  other — will  be 
counted  in  by  the  offenders  as  a  part  of  the  necessary  ex- 
penses of  their  business ;  and  the  business,  if  forcibly  sup- 
pressed in  one  locality,  will  inevitably  be  renewed  and  con- 
tinued in  some  other.  It  is  therefore  matter  of  the  first 
importance  for  every  Government  in  framing  laws  for  the 
assessment  and  collection  of  taxes  to  endeavour  to  de- 
termine, not  only  for  fiscal  but  also  for  moral  purposes, 
when  the  maximum  revenue  point  in  the  case  of  each 
tax  is  reached,  and  to  recognise  that  in  going  beyond  that 
point  the  Government  "  overreaches  "  or  cheats  itself. 

Obviously  those  who  in  the  past  have  shaped  the  policy 
of  the  United  States  in  respect  to  the  taxation  of  dis- 
tilled spirits  for  the  purpose  of  revenue  have,  for  the  most 
part,  never  studied  this  aspect  of  the  case  or  cared  to  en- 


CONSUMPTION  OF  SPIRITS.  51 

courage  any  one  to  do  so;  but;,  on  the  contrary,  as  has 
been  somewhat  humorously  expressed,  "  they  have  held 
out  to  the  citizen,  on  the  one  hand,  a  temptation  to  vio- 
late the  law  too  great  for  human  nature  as  ordinarily  con- 
stituted to  resist,  and  in  the  other  writs  for  personal  arrest 
and  seizure  of  property,  and,  thus  equipped,  have  an- 
nounced themselves  ready  for  business." 

The  data  officially  collected  and  reported  by  the  In- 
ternal Revenue  Department  of  the  United  States  Treasury 
furnish  the  only  reliable  basis  for  obtaining  approximately 
correct  answers  to  the  following  questions:  1.  To  what 
extent,  through  a  well-considered  system  of  taxation,  can 
the  manufacture  and  sale  of  distilled  spirits  be  made 
available  as  sources  of  national  revenue?  2.  What  has 
been  and  is  the  probable  per  capita  and  aggregate  annual 
consumption  of  this  class  of  spirituous  liquors  by  the 
people  of  the  United  States?  The  first  of  these  questions 
is  eminently  pertinent  to  the  legislator;  the  second,  to 
the  student  and  advocate  of  social  reform. 

The  experience  derived  from  the  taxation  of  distilled 
spirits  previous  to  1869  by  the  Federal  authorities  was  so 
unnatural  and,  as  it  were,  spasmodic  as  to  debar  its  use 
for  the  determination  of  any  general  or  average  conclu- 
sions, and  limits  inquiry  to  the  results  which  followed  in 
subsequent  years  (1870-1898),  under  lower  and  more 
rational  rates  of  taxation,  and  a  more  efficient  and  intelli- 
gent fiscal  administration.  And  for  the  purpose  of  mak- 
ing a  clear  exhibit  of  these,  attention  is  asked  to  the  fol- 
lowing table  (prepared  from  official  data),  showing  (1) 
the  population  of  the  country  for  each  successive  fiscal 
year  from  1870  to  1894,  inclusive;  (2)  the  quantity  of 
gallons  of  spirits  annually  taxed;  (3)  the  average  per 
capita  consumption  for  each  successive  year:  (4)  the 
amount  of  revenue  annually  collected ;  ( 5 )  the  average  an- 
nual revenue,  or  tax  per  capita;  (6)  the  annual  tax  per 
gallon;  (7)  the  average  tax  per  gallon. 

The  first  point  of  interest  which  an  examination  of  the 
above  table  reveals  is,  that  the  average  per  capita  con- 
sumption of  tax-paid  distilled  spirits  by  the  people  of 
the  United  States  during  the  years  1870,  1871,  1872,  and 
1873,  under  the  tax  of  fifty  cents  per  gallon,  was  greater 
than  it  has  been  at  any  subsequent  period  under  a  seventy 


52       THE   THEORY  AND   PRACTICE  OF  TAXATION. 


Year 

ENDING 

June  30 


1870. 
1871. 

1872. 

1873. 
1874. 
1875. 

1876. 

1877. 
1878. 

1879. 

1880 
1881 

1882 

1883 
1884 

1885 

1886 

1887 

1888  , 

1889 

1890.. 

1891.. 

1893., 

1893.. 

1894. , 
1895f. 
1896.. 
1897. , 
1898., 


Population.* 


38,558,371 
39,555,000 
40,596,000 

41,677,000 

42,796,000 

43,951,000 

45,137,000 

46,353,000 

47,598,000 

48,866,000 

50,155,783 
51,316,000 

52,495,000 

53,693,000 
54,911,000 

56,148,000 

57,404,000 
58,680,000 
59,974.000 
61.289,000 
62,622,250 
63,975,000 
65,520,000 
66,826,000 

68,275,000 
69,753,000 
71,263,000 
72,807,000 
74,389,000 


Quantity 
taxed,  t 

Quanti- 
ty per 
capita. 

Gallons. 

78,490,198 
62,314,628 
66,235,578 

Gallom. 

2.03 
1.58 
1.63 

65,911,141 

1.58 

62,581,562 

1.46 

64,425,911 

1.47 

58,512,693 

1.30 

58,043,389 

1.25 

50,704,189 

1.07 

53,025,175 

1.09 

62,132,415 

1.23 

69,127,206 

1.34 

71,976,398 

1.37 

76,762,063 
79,616,901 

1.43 

1.45 

69,158,025 

1.23 

70,851,355 
67,380,391 
71,565,486 
77,163,529 
85,043,336 
88,473,437 
95,045,787 
99,145,889 

1.23 
1.15 
1.19 
1.25 
1.35 
1.38 
1.45 
1.48 

88,777,387 

1.30 

75,555,742 

1.08 

68,480,720 

.96 

69,979,362 

.96 

79,764,749 

1.07 

Revenue. 


Dollars. 

39,245,099 
31,157,314 

33,117,788 

43,131,064 
43,807,093 
46,877,938 

51,390,490 

52,671,291 

45,626,533 

47,709,464 

55,919,119 
62,214,127 

64,778,756 

69,085,856 
71,655,211 

62,242,221 

63,766,219 
60,642,351 
64,408,937 
69,447,175 
76,539,002 
79,626,093 
85,541.209 
89,231,300 

79,899,647 
74,837,396 
75,327,898 
76,967,257 
87,741,223 


Rev- 
enue 
per 
cap- 
ita. 


Doll'rs 

1.02 
.79 
.82 

1.03 

1.02 

1.07 

1.14 

1.14 

.96 

.08 

1.11 
1.24 

1.23 

1.22 
1.30 

1.23 

1.11 
1.03 
1.07 
1.13 
1.22 
1.24 
1.31 
1.34 

1.17 
1.07 
1.05 
1.05 
1.18 


Tax  per 
gallon. 


.70 


|:?Si 


Cents. 

.50 
.50 
50 
.50 
.70 
70 
.70 
90 
70  i 
.90)' 
.70) 
.90  \ 
.70) 
.90  f 
.50 
.70 
.90 
.70 
90 
70) 
.90  f 
.70  j 
.90  f 
.90 
.90 
.70) 
.90  [ 
.90 
.90 
.90 
.90 
.90 
.90 
.90 
.90 
.90) 
1.10  f 

.90 
1.10 
.90) 

il.lOf 


Aver- 
age tax 

per 
gallon. 


Ceats. 

50 
50 
50 

65.14 

70 

72.76 

88.58 

89.97 

89.99 

89.98 

90 
90 

90 

90 
90 

90 

90 
90 
90 
90 
90 
90 
90 
90 

90 

99 
110 
110 
110 


See  notes  for  this  table  on  the  opposite  page. 


QUANTITY  OF  TAXED  SPIRITS.  53 

and  ninety  cent  rate.  Such  a  result  is  undoubtedly  refer- 
able in  the  main  to  the  economic  law  that  a  reduction 
in  the  price  of  a  commodity  encourages  its  consumption 
(in  this  instance  for  industrial  as  well  as  stimulant  pur- 
poses), and  in  a  degree  to  the  fact  that  a  fifty-cent  tax, 
with  its  accompaniment  of  stringent  penalties,  greatly 
diminished  the  incentive  for  illicit  production.  A  won- 
derfully striking  illustration  of  the  strength  of  tempta- 
tion for  the  evasion  of  the  revenue  created  by  the  previous 
high  taxation,  which  had  little  other  reason  than  mere 
sentiment  for  its  imposition,  is  also  afforded  by  the  fact 
that  while  the  Government  in  1872,  under  a  tax  of  fifty 
cents  per  proof  gallon,  took  cognizance  of  an  average  annual 
tax-paid  consumption  on  the  part  of  the  people  of  the 
United  States  of  1.63  gallons  per  capita,  it  was  only  able  to 
recognise  in  1868,  under  a  two-dollar  tax,  a  similar  average 
annual  consumption  of  about  0.38  proof  gallon  per  capita. 
The  second  point  of  interest  in  connection  with  the 
foregoing  tabular  exhibit  is  the  demonstration  it  affords 
of  the  very  curious  variations  which  occurred  in  the  suc- 
cessive years  from  1870  to  1898,  inclusive,  in  the  quan- 
tity of  spirits  that  annually  paid  taxes  to  the  Government, 
and  which  may  be  regarded  as  constituting  an  approxi- 
mately accurate  measure  of  the  average  annual  per  capita 
consumption  of  this  commodity  by  the  entire  population 
of  the  country.  The  explanation  of  such  changes  is  not 
difficult.  They  are  in  general  unquestionably  referable  to 
immediately  antecedent  or  contemporary  changes  in  the 
business  condition  of  the  country,  which  in  turn  are  deter- 
minative in  a  high  degree  of  the  popular  ability  to  consume 
an   article — like   distilled   spirits — of   comparatively   high 

*  Population  for  1870,  1880,  and  1890  from  census;  other  years 
calculated  by  the  actuary  of  the  Treasury  Department. 

tin  189.5  the  withdrawals  included  41,369,604  gallons,  on  which 
the  tax  was  90  cents;  in  1896,  4,475  gallons,  at  90  cents;  and  in 
1897,  50,206  gallons.  The  acting  Commissioner  of  Internal  Rev- 
enue, in  a  letter  to  the  Secretary  of  the  Treasury,  dated  April  3, 
1897,  amply  verified  the  predictions  made  in  the  text.  After  re- 
ferring to  the  "  greatly  increased  incentive  to  fi'aud  furnished 
by  the  present  high  rate  of  tax,"  he  suggested  the  prompt  reduc- 
tion to  90  cents,  and  even  to  70  cents,  the  latter  being  in  his 'opin- 
ion the  highest  revenue-producing  rate. 

t  Includes  fruit  brandies. 


54   THE  THEORY  AND  PRACTICE  OF  TAXATION. 

cost  and  largel}'  a  luxury,  popular  tastes  and  habits  and 
restrictive  moral  influences  remaining  constant.  Thus, 
passing  by  the  year  1870,  in  which  there  was  a  great  in- 
crease (from  altogether  abnormal  causes)  in  the  number 
of  gallons  produced  and  made  subject  to  taxation,  the  in- 
crease in  the  tax-paid  product  and  in  the  average  per 
capita  consumption  during  the  succeeding  fiscal  years  1872 
and  1873,  when  the  business  of  the  country  was  fairly 
prosperous,  was  regular  and  not  inconsiderable.  The  com- 
mencement of  the  next  fiscal  year  (1874)  was  signalized 
by  one  of  the  most  memorable  financial  panics  in  Ameri- 
can history  and  a  general  prostration  of  business,  from 
which  last  there  was  no  decided  recovery  until  1879. 

During  all  this  period  the  domestic  production  of  dis- 
tilled spirits  of  which  the  Government  took  cognizance 
continued  to  decline,  and  the  average  per  capita  of  con- 
sumption touched  the  exceedingly  low  proportions  of  1.07 
and  1.09  gallons  in  the  fiscal  years  of  1878  and  1879  re- 
spectively. With  a  renewal  of  active  and  profitable  busi- 
ness throughout  the  country  in  1880,  the  annual  taxed 
production  of  spirits  went  up  from  50,704,189  gallons  in 
1878  to  79,616,901  gallons  in  1884,  and  the  per  capita 
consumption  from  1.07  gallons  to  1.45  gallons  in  the  cor- 
responding years.  During  the  period  from  1871  to  1880 
there  was  a  decrease  both  in  the  quantity  of  spirits  on 
which  the  Government  was  able  to  collect  a  tax  and  in 
the  apparent  per  capita  consumption  of  the  people,  and 
this,  too,  notwithstanding  an  increase  during  this  same 
period  of  thirty  per  cent  in  the  population  of  the  country ; 
1871  showing  a  tax  on  sixty-two  and  one  third  millions 
(1.58  gallons  per  capita),  while  in  1879  the  tax  was  col- 
lected on  only  fifty-three  million  gallons  (1.09  gallons  per 
capita). 

The  decade  from  1870  to  1879  was  further  charac- 
terized by  two  periods  of  disturbance — which  ought  to 
be  instructive  in  view  of  future  legislation — occasioned 
by  an  advance  in  1873  of  the  gallon  tax  from  fifty  to 
seventy  cents,  and  again  in  1875  from  seventy  to  ninety 
cents.  In  both  cases  these  advances  in  rates  were  followed 
by  large  annual  reductions  in  the  quantity  of  the  spirits 
taxed  and  in  an  apparent  per  capita  consumption,  which 
in  turn  indicated   extensive   revivals   of   illicit   practices 


DEPRESSION  AND  CONSUMPTION.  55 

which  the  reduction  of  the  tax  to  fifty  cents  in  1868  had 
nearly  extinguished,  and  which  indications  were  also  made 
certainties  by  abundant  direct  eyidence. 

The  decade  of  1880  to  1889  showed,  on  the  other 
hand,  an  increase  in  the  aggregate  amount  paying  taxes 
from  sixty-two  and  one  eighth  million  gallons  in  1880 
(1.23  gallons  per  capita)  to  seventy-seven  and  one  eighth 
million  gallons  in  1889  (1.25  gallons  per  capita),  an  ag- 
gregate increase  approximating  a  concurrent  increase  of 
twentj'-two  per  cent  in  the  population  of  the  country. 

During  the  fiscal  3'ears  from  1888  to  1893,  inclusive, 
under  a  uniform  and  prospectively  stable  rate  of  tax,  an 
apparently  good  and  efficient  administration  of  the  law, 
and  a  fairly  prosperous  condition  of  the  country,  the 
results  in  this  department  of  our  national  revenues  were 
very  exceptional  and  interesting.  The  continuous  increase 
in  production,  in  per  capita  consumption,  and  in  revenue 
was  remarkable,  the  average  increase  in  spirits  paying  taxes 
having  been  nearly  4,600,000  gallons  per  annum,  or  in  a 
ratio  greater  than  any  concurrent  increase  in  the  population 
of  the  country;  in  average  per  capita  consumption,  nearly 
one  third  of  a  gallon;  in  average  increase  in  revenue  of 
nearly  $5,000,000  ($4,910,000)  per  annum,  the  whole  cul- 
minating for  the  fiscal  year  (1893)  in  a  product  of  99,000,- 
000  gallons,  an  annual  revenue  of  $89,000,000,  and  a  per 
capita  consumption  of  1.48  gallons.  During  the  same 
period  the  per  capita  consumption  of  all  spirits,  domestic 
and  foreign,  in  Great  Britain  was  about  1.063  gallons. 

The  financial  troubles  and  business  depressions  in 
Europe  and  other  countries  during  the  years  1892  and 
1893  do  not  appear  to  have  exerted  the  slightest  influence 
on  the  production  and  consumption  of  distilled  spirits  in 
the  United  States.  But  the  advent  in  1894  of  a  similar 
state  of  affairs  in  the  latter  country  speedily  manifested 
itself,  reducing  the  current  per  capita  consumption  from 
1.48  gallons  in  1893  to  1.3  gallons;  the  direct  revenue 
from  $89,231,000  in  1893  to  $79,899,000;  the  current  per 
capita  consumption  from  1.48  to  1.33  gallons,  and  the  total 
annual  revenue  to  the  extent  of  $9,461,008.  The  returns 
for  1896  and  1897  are  still  more  conclusive  on  this  point. 
The  quantity  consumed  per  capita  touched  a  lower  point 
than  had  been  reached  in  any  year  since  1870. 


56       THE  THEORY  AND  PRACTICE  OF  TAXATION. 

The  normal  consumption  of  distilled  spirits  in  the 
United  States  in  1894,  as  indicated  by  withdrawals  from 
distilleries  and  warehouses,  was  about  8,000,000  gallons 
a  month.  The  extent  to  which  the  increase  in  the  direct 
tax  on  spirits  by  the  act  of  August  38,  1894,  from  ninety 
cents  to  one  dollar  and  ten  cents  per  gallon,  was  antici- 
pated by  speculators  is  strikingly  illustrated  by  the  fact 
that  an  average  monthly  revenue  from  the  lesser  tax  of 
about  $8,000,000  per  month  during  the  first  six  months 
of  1894  increased  during  the  month  of  July  and  the  first 
twenty-seven  days  of  August  to  $19,064,000  and  $21,- 
470,000  respectivelv,  and  declined  in  the  succeeding  moath 
of  September  to  $510,696. 

Any  review  of  the  comparatively  recent  tax  experiences 
of  the  United  States  would  be  incomplete  that  failed  to 
notice  its  taxation  (concurrent  with  that  on  distilled 
spirits)  of  domestic  fermented  liquors  (beer,  etc.).  The 
internal  revenue  tax  on  this  commodity  was  until  1897 
practically  uniform  since  its  first  authorization  in  1863, 
namely,  one  dollar  per  barrel,  holding  theoretically  thirty- 
one  gallons.  In  1898  the  rate  was  increased  to  two  dollars 
a  barrel.  The  tax  was  originally  assessed  and  collected  on 
the  returns  of  the  brewers,  and  was  largely  evaded.  After 
July,  1866,  it  was  successfully  enforced  through  the  em- 
ployment of  stamps,  one  of  which,  "  denoting  the  amount 
of  the  tax,"  is  required  to  be  affixed  upon  the  spigot  hole 
or  tap  (of  which  there  shall  be  but  one)  in  such  a  way 
that  the  stamp  shall  be  destroyed  upon  the  withdrawal  of 
the  liquor  from  the  barrel  or  other  receptacle.  The  table  on 
the  opposite  page  exhibits  in  detail  the  experience  which  has 
characterized  each  fiscal  year  since  the  inception  of  this 
source  of  revenue  in  1863  down  to  and  including  1898. 

The  points  of  interest  made  apparent  in  the  foregoing 
tabular  exhibit,  and  to  which  attention  is  especially  asked, 
are  as  follows : 

(1)  The  regular  and  great  increase  in  the  quantity  of 
fermented  liquors  annually  made  subject  to  internal  reve- 
nue taxation — i.  e.,  from  62,205,375  gallons  in  1863  to 
1,071,183,827  gallons  in  1893,  and  an  increase  in  per 
capita  consumption  very  far  in  excess  of  the  rate  of  in- 
crease in  population — i.  e.,  from  1.86  gallons  in  1863  to 
over  sixteen  gallons  in  1893. 


CONSUMPTION  OF   FERMENTED  LIQUORS. 


57 


Population. 


33,365,000 

34,046,000 

34,748,000 
35,469,000 
36,211,000 
36,973,000 
37,756,000 
38,558.371 
39,555,000 
40,596,000 
41,677,000 
42,796,000 
43,951,000 
45,137,000 
46,353,000 
47,598,000 
48,866,000 
50,155,783 
51,316,000 
52,495,000 
53,693,000 
54,911,000 
56,148,000 
57,404,000 
58,680,000 
59,974,000 
61,289,000 
62,622.250 
68,975,000 
65,520,000 
66,826,000 
68,275,000 
69,753,000 
71,263.000 
72,807,000 

74,389,000 


Quantity  taxed. 


Gallons. 

62,205,375 
97,382,811 


113, 

158. 

192 

190. 

196, 

203. 

239. 

268. 

298. 

297 

293. 

306. 

304. 

317 

344. 

413. 

443, 

525. 

550, 

588, 

594. 

642. 

716. 

765. 

778. 

854. 

944. 

986 
1,071 
1,033. 
1,040 
1,110 
1,067 


,372,611 
,569,340 
,429,462 
,546,553 
,603,705 
,813,127 
,948,060 
,442,237 
,633,013 
,627,807 
,033,607 
,972,912 
.111,860 
,485,601 
,195,604 
,760,441 
,641,868 
,514,635 
,494,652 
,957,189 
,764,543 
,038.923 
,767.306 
,086,789 
,715,443 
,420,264 
,823,952 
,353,916 
,183,827 
,378.273 
,403,741 
,609,038 
,115,914 


1,162,292,486 


Quantity 

per 
capita. 


Gallons. 

1.86 

2.86 
3.26 


6. 06 

6.61 

7.16 

6.95 

6.66 

6.80 

6.56 

6.67 

7.04 

8.25 

8.65 

10.01 

10.25 

10.73 

10.59 

11.18 

12.21 

12.77 

12.71 

13.64 

14.77 

15.05 

16.03 

15.13 

14.91 

15.66 

14.65 

15.63 


Revenue  col- 

Revenue 

lected  from 

per 

barrel  tax. 

capita. 

Dollar.. 

Dollan. 

1,558,083 

.05 

2,223,719 

.07 

3,657,181 

.11 

5,115,140 

.14 

5,819,345 

.16 

5.685,663 

.15 

5,866,400 

.16 

6,081,520 

.16 

7,159,740 

.18 

8,009,969 

.20 

8,910,823 

.21 

8,880,829 

.21 

8,743,744 

.20 

9,159,675 

.33 

9,074,355 

.30 

9,473,360 

.20 

10.370,353 

.21 

13,346,077 

.25 

13,237,700 

.26 

15,680,678 

.30 

16,426,050 

.31 

17,573,722 

.33 

17,747,006 

.33 

19,157,612 

.33 

21,387,411 

.36 

22,829,202 

.38 

23,235,863 

.38 

25.494,798 

.41 

28,193,337 

.44 

39,431,498 

.45 

31,962,743 

.48 

30.834,674 

.45 

31,044,305 

.44 

33,139,141 

.46 

31,841,362 

.43 

38,885,152 

.53 

Tax  per 

barrel 

of  31 

gallons. 


Dollars. 


il 


00 
60 
60 
00 
00 
00 
00 
00 
00 
00 
00 
00 
00 
00 
00 
00 
00 
1.00 
1.00 


00 

00 

00 

00 

00 

00 

00 

1.00 

1.00 

1.00 

1.00 

1.00 

1.00 

1.00 

1.00 

1.00 

1.00 

1.00 

1.00 

2.00 


(2)  The  concurrent  regular  increase  in  revenue  from 
this  source — i.  e.,  from  $1,558,000  in  1863  to  nearly 
$32,000,000  in  1893. 

(3)  The  variations  in  the  product  of  fermented  liquors 
which  the  Government  has  been  able  annually  to  subject 

5 


58       THE   THEORY   AND   PRACTICE  OF  TAXATION. 

to  taxation  since  1863  have  been  inconsiderable  and  in 
remarkable  contrast  to  those  occurring  in  the  case  of  dis- 
tilled spirits.  Business  depression  from  1874  to  1879 
and  for  the  year  1884  appears  to  have  been  influential  in 
checking  per  capita  consumption,  though  in  a  small  de- 
gree, and  to  have  exerted  little  or  no  influence  in  the  sub- 
sequent years,  that  are  subject  to  analysis,  down  to  1894, 
when  financial  and  industrial  depression  was  again  opera- 
tive in  the  country,  results  indicating  that  similar  larger 
and  contemporaneous  decrements  in  consumption  and 
revenue  in  the  case  of  distilled  spirits  were  due  to  fraudu- 
lent practices,  rather  than  to  an  impairment  of  ability  to 
consume  on  the  part  of  the  masses. 

(4)  The  average  annual  increase  in  the  receipt  of  in- 
ternal revenue  from  fermented  liquors  for  the  ten  years 
from  1883  to  1892  was  $1,306,057,  and  for  the  four  vears 
ending  with  the  fiscal  year  1893  about  $1,617,000.  That 
this  latter  ratio  of  annual  increase  under  the  present  rate 
of  tax  of  one  dollar  the  barrel  of  thirty-one  gallons  is  likely 
to  indefinitely  continue  is  almost  demonstrated  by  the  fact 
that  the  popularity  of  fermented  or  malt  liquors  as  bever- 
age among  the  American  people  is  unquestionably  increas- 
ing; and  also  that  large,  seemingly,  as  is  their  present 
average  per  capita  consumption — namely,  fifteen  gallons — 
the  present  per  capita  consumption  of  the  people  of  sev- 
eral other  nationalities  is  much  greater ;  that  of  the  United 
Kingdom  being  estimated  at  thirty  gallons;  of  England 
and  Wales,  thirty-six ;  of  Belgium,  forty ;  and  of  Germany, 
forty-five.  An  important  fact  pertinent  to  the  prospective 
consumption  of  beer  and  its  permanent  value  as  &  source 
of  national  revenue  is,  that  the  cost  of  the  materials  used 
in  its  manufacture  has  decreased  in  comparatively  recent 
years,  in  the  United  States,  Great  Britain,  and  probably 
other  countries  characterized  by  its  large  consumption, 
to  the  extent  of  at  least  forty  per  cent;  and  the  advan- 
tage from  this  change  which  has  accrued  to  British  brew- 
ers was  stated  bv  the  British  Chancellor  of  Exchequer, 
in  May,  1895,  to"' have  been  upward  of  £2,000,000  ($10,- 
000,000)  per  annum.  Another  point  of  interest  in  this 
connection  which  is  especially  worthy  of  attention  is,  that 
if  moral  influences  have  ever  materially  affected  the  gen- 
eral consumption  of  distilled  spirits  or  fermented  liquors 


DRAFT   OF   A   CUSTOMS  TARIFF.  59 

in  the  United  States,  the  tabulated  tax  experiences  of  its 
Government,  which  constitute  the  only  reliable  basis  for 
forming  an  opinion,  do  not  afford  any  indication  of  it. 

Having  reformed  and  radically  reduced  the  war  taxes 
in  the  Department  of  Internal  Eevenue,  it  was  next  in 
order  for  Congress  to  consider  the  readjustment  of  the 
customs  system  of  taxation,  which  had  also  been  evolved, 
as  it  were,  out  of  the  war's  fiscal  exigencies ;  and  it  accord- 
ingly in  1867  instructed  the  Secretary  of  the  Treasury 
to  present  at' its  next  session  the  draft  of  a  tariff  embody- 
ing reductions  of  war  rates.  The  responsibility  of  pre- 
paring such  a  draft  having  been  next  intrusted  by  the 
Secretary  to  the  Special  Commissioner  of  the  Eevenue, 
the  latter,  with  a  view  of  qualifying  himself  for  the  trust, 
visited  Europe  under  a  Government  commission,  and  in- 
vestigated under  almost  unprecedented  advantages  nearly 
every  form  of  industry  then  competitive  with  the  United 
States  in  Great  Britain  and  on  the  Continent.  The  results 
of  this  visit  and  investigation  effected  an  enlightenment  on 
his  part  in  respect  to  two  salient  and  fundamental  points : 

First,  that  no  country,  with  the  exception  of  the  United 
States,  which  had  adopted  in  a  greater  or  less  degree  the 
policy  of  protection  through  duties  or  restrictions  on  im- 
ports, had  ever  regarded  the  taxation  of  the  imports  of 
"  raw,"  *  or  crude,  or  partly  manufactured  materials,  to 
be  subsequently  used  for  larger  manufacturing,  as  an  ele- 
ment of  protection  in  its  largest  sense  to  its  domestic  in- 
dustry, but  rather  as  antagonistic  to,  and  destructive  of, 
such  industry ;  and  that,  while  such  taxation  in  the  United 
States  had  undoubtedly  built  up  some  industries  and  en- 
riched their  owners,  it  had  been  a  great  restraint  on  the 
development  of  a  much  larger  and  higher  class  of  indus- 

*  The  definition,  or  rather  determination,  of  what  constituted 
a  "  crude "  or  "  raw "  material  for  manufacturing  purposes  has 
always  been  a  matter  of  embarrassment  to  legislators  and  eco- 
nomic writers,  inasmuch  as  a  confessedly  manufactured  and  often 
elaborate  proauct  may  be  relatively  a  raw  or  crude  material  for 
successively  higher  grades  or  processes  of  manufacture.  A  propo- 
sition recently  proposed  by  INIr.  Lindley  Vinton,  of  New  York,  to 
restrict  the  application  of  the  above  terms  in  law,  commerce,  and 
economics,  to  the  state  or  condition  in  which  any  product  first 
enters  into  trade  or  commerce,  would  seem  to  be  so  free  from  any 
ambiguity  of  meaning  as  to  be  worthy  of  consideration. 


60      THE  THEORY  AND  PRACTICE  OF  TAXATION. 

tries,  employing  a  greater  number  of  workmen,  and  pay- 
ing much  higher  average  wages.  Second,  that  the  coun- 
tries of  Europe  in  which  the  average  rates  of  wages  were 
lowest  were  the  most  clamorous  for  protective  duties  on 
imports;  and  that  high  wages  in  any  country,  conjoined 
with  the  extensive  and  skilful  use  of  machinery,  instead 
of  being  evidence  of  industrial  weakness,  were  evidence  of 
great  industrial  strength;  inasmuch  as  no  employer  can 
continuously  pay  high  wages  unless  his  product  is  large, 
his  labour  most  effective,  and  his  cost  of  product,  measured 
on  the  terms  of  labour,  comparatively  low. 

The  announcement  of  these  views,  and  especially  their 
publication  in  a  report  in  1869,  created  much  antagonism 
among  the  advocates  of  the  policy  of  extreme  protection  in 
the  country;  and  Horace  Greeley  and  others  publicly 
charged  that  the  commissioner  had  been  induced  to  change 
his  views  through  the  corrupting  agency  of  British  gold. 
Notwithstanding  this,  a  draft  for  a  complete  revision  of 
the  tariff  of  the  United  States,  prepared  under  his  almost 
sole  supervision,  and  accompanied  with  a  report  on  the 
existing  revenue  resources  and  industrial  and  financial 
condition  of  the  country,  was  submitted  to  the  Forty-first 
Congress  by  Secretary  McCulloch,  with  his  indorsement, 
in  December,  1869.  This  draft,  subsequently  embodied  in 
the  form  of  a  bill,  with  slight  modifications  by  the  Finance 
Committee  of  the  Senate,  came  very  near  enactment  into 
law,  the  Senate  passing  it  by  a  vote  of  twenty-seven  to 
ten.  In  the  House  of  Eepresentatives  it  failed  in  the 
closing  hours  of  the  second  session  by  a  very  few  votes, 
and  not  by  a  direct  vote,  but  on  a  motion  to  suspend  the 
rules,  take  the  bill  from  the  Committee  of  the  Whole,  and 
put  it  upon  its  passage.  This  motion,  which  required  a 
two-thirds  vote,  was  defeated — one  hundred  and  six  in 
the  affirmative  to  sixty-four  in  the  negative.  It  was  thus 
made  evident  that,  could  the  bill  as  it  came  from  the 
Senate  have  been  brought  directly  before  the  House,  it 
would  have  passed  by  a  large  majority,  and  probably  have 
quieted  for  years  all  difficult  and  disturbing  legislation 
on  this  subject. 

When  the  office  of  Special  Commissioner  expired  by 
limitation  in  1870,  the  appointment  as  chairman  of  a  State 
commission,  specially  created  for  investigating  the  sub- 


NEW  YORK  TAX  COMMISSION.  61 

ject  and  laws  relating  to  local  taxation,  was  tendered  to 
its  late  incumbent  by  the  Governor  (Hon.  John  T.  Hoff- 
man) of  the  State  of  New  York,  and  accepted.  This  new 
position  afforded  an  almost  unprecedented  opportunity 
and  facilities  for  becoming  acquainted  with  a  practically 
new  department  of  taxation;  the  taxes  levied  by  the  Fed- 
eral Government  being  mainly  of  an  indirect  character, 
and  subject  to  constitutional  limitations;  while  those  of 
the  States  are  mainly  direct,  and  practically  subject  to  no 
limitations  as  to  object,  except  as  respects  imports,  ex- 
ports, and  the  property  and  instrumentalities  of  the  United 
States.  The  results  of  this  new  field  of  exploration  were 
laid  before  the  Legislature  of  the  State  of  Kew  York  in 
the  form  of  two  reports  (in  1871  and  1872),  with  an  ac- 
companying draft  of  a  code  of  laws.  The  facts  developed 
on  this  line  of  investigation,  and  which  will  be  restated 
with  much  additional  evidence  in  the  following  chapters, 
are  generally  regarded  as  antagonistic  to  the  theory  of 
taxation  as  accepted  and  taught  by  most  economists,  and 
incorporated  into  statutes  by  lawmakers.  The  Legislature 
to  which  these  reports  were  submitted  paid  no  further 
attention  to  them  than  to  order  their  printing.  They  were, 
however,  contrary  to  almost  all  precedent,  reprinted  in 
the  United  States  and  in  Europe. 

NoTEr — The  writer  would  take  this  occasion  to  acknowledge 
his  great  indebtedness  to  the  late  Isaac  Sherman,  of  New  York, 
whose  innate  modesty  and  desire  to  avoid  publicity  alone  pre- 
vented a  general  recognition  by  his  countrymen  of  his  great  in- 
tellectual ability;  and  that  this  characterization  is  not  unwar- 
ranted is  proved  by  the  fact  that  it  was  fully  admitted  by  such 
men  of  his  time  as  Samuel  J.  Tilden,  Charles  O'Conor,  and  Rev. 
Dr.  Bellows;  and  also  by  the  circumstance  that  he  was  the  one 
man  of  all  others  that  President  Lincoln  selected  as  his  adviser 
in  the  most  critical  periods  of  the  war,  and  to  whom  he  repeatedly 
tendered  the  highest  civil  offices  in  his  gift.  Mr.  Sherman  took 
a  deep  interest  in  the  work  of  the  New  York  State  Tax  Commis- 
sion; participated  in  its  investigations;  contributed  to  its  coun- 
cils a  very  thorough  knowledge  of  the  views  of  English,  French, 
and  German  writers  on  taxation,  and  of  the  cognate  opinions  and 
decisions  of  American  and  European  courts  and  jurists;  and  is 
entitled  to  equal  credit  for  whatever  of  merit  may  pertain  to  its 
conclusions.  If  these  conclusions,  arrived  at  and  expressed  in  the 
following  chapters,  do  not  meet  the  full  concurrence  of  economists, 
the  writer  has  the  satisfaction  of  knowing  that  they  received,  in 
the  main,  the  full  indorsement  of  one  so  pre-eminently  qualified 
to  pass  judgment  upon  them. 


Chapter  ii. 

THE   PLACE  OF  TAXATION   IN   LITERATURE   AND  HISTORY. 

One  of  the  great  historians  of  the  present  century  has 
expressed  disappointment  at  what  he  terms  the  "  empti- 
ness "  of  historical  study,  and  accordingly  inclines  to  the 
opinion  that  guidance  in  respect  to  human  affairs  in  the 
future  is  to  be  sought  for  in  present  rather  than  in  past 
experiences.  Nevertheless,  it  would  seem  to  stand  to 
reason,  that  wiien  any  department  of  knowledge,  especially 
one  characterized  by  controverted  questions,  is  to  be  com- 
prehensively examined,  with  the  prime  object  of  determin- 
ing the  best  methods  for  human  action,  it  would  not  be 
expedient  to  attempt  to  discover  or  discuss  any  abstract 
principles  which  ought  to  govern  such  action,  until  at  least 
a  summary  of  facts  derived  from  experience  and  essen- 
tial to  correct  conclusions  had  been  presented  and  made 
familiar,  and,  acting  on  this  assumption,  it  is  proposed 
next  to  ask  attention — first,  to  the  place  of  taxation,  con- 
sidered as  a  department  of  knowledge,  in  general  litera- 
ture; and,  second,  to  some  points  of  historical  interest, 
growing  out  of  the  appropriation  by  states  or  rulers  of  the 
property  of  their  citizens  or  subjects  for  real  or  assumed 
public  purposes.  It  is  believed  that  in  this  way  the  dis- 
cussion at  a  later  period  of  the  principles  growing  out  of 
the  exercise  by  governments  of  this  great  prerogative  may 
be  facilitated  and  rendered  more  attractive.* 

Position  of  Taxation  in  General  Literature. — 
All  general  treatises  on  political  economy  devote  more  or 

*  "  No  man  can  learn  what  he  has  not  preparation  for  learn- 
ing, however  near  to  his  eyes  is  the  object.  Our  eyes  are  holden 
that  we  can  not  see  thinofs  that  stare  us  in  the  face,  until  the  hour 
arrives  when  the  mind  is  ripened;  then  we  behold  them.'' — 
Emerson,  Spiritual  Laws,  First  Series  of  Essays,  p.  139. 

63 


LITERATURE  OP  TAXATION.  63 

less  space  to  the  consideration  of  taxation;  and  there  have 
been  many  publications  in  the  nature  of  official  reports, 
compendiums  of  tax  laws,  and  their  interpretation  by  legal 
tribunals,  and  special  essays  on  particular  forms  of  taxes. 
But,  at  the  same  time,  notwithstanding  the  vastness  and 
importance  of  the  subject,  its  symbolism  and  exemplifica- 
tion of  sovereignty,  its  influence  for  weal  or  woe  on  every 
citizen  and  on  every  industry,  according  as  the  power  in- 
volved is  properly  or  improperly  exercised,  and  the  part  it 
has  played  in  histor}^,  its  position  in  economic  literature 
is  so  comparatively  insignificant  that  there  is  not  a  single 
publication  at  present  in  the  English  language  which  is 
entitled  to  be  considered  as  a  full  and  complete  treatise; 
certainly  none  such  as  are  readily  at  the  command  of 
every  person  desirous  of  becoming  reasonably  proficient  in 
any  of  the  other  leading  branches  of  learning.  Professor 
Cossa,  of  the  University  of  Pavia,  Italy,  in  a  bibliography 
of  taxation  incorporated  in  a  brief  treatise  on  the  Science 
of  Finance,  published  in  1882,  and  brought  up  to  the  times 
by  an  American  translation  in  1888,*  does  not  mention 
even  one  title  of  this  character.  And  although  there  are 
works  on  taxation  more  or  less  general  in  their  scope  in 
other  languages — especially  in  French  and  German — and 
to  some  of  which  high  merit  is  accorded,  there  are  none 
which  any  considerable  number  of  economists  are  willing 
to  accept  as  standard  or  authoritative  in  all  departments; 
the  chapter  on  taxation  in  Adam  Smith's  Wealth  of  Na- 
tions constituting  the  only  treatise  which  can  possibly  be 
regarded  as  an  exception,  f    For  such  a  result  it  is  not  easy 

*  Taxation,  its  Principles  and  Methods.  Translated  from  the 
Scienza  delle  Finanze  of  Dr.  Luigi  Cossa,  Professor  of  the  Uni- 
versity of  Pavia,  Italy;  with  an  Introduction  and  Notes  by  Horace 
White.     New  York:   G.  P.  Putnam's  Sons,  1888. 

t  "  It  is  well  known  that  during  the  period  from  Adam  Smith 
to  the  close  of  John  Stuart  Mill's  activity — that  is,  for  fully  one 
hundred  years — English  political  economy  treated  the  science  of 
finance "  (embracing  the  raising  of  revenue)  "  as  nothing  better 
than  a  scanty  appendage.  It  is  a  significant  fact  that  no  work 
worth  mentioning  on  the  science  of  finance  has  yet  (1889)  been 
published  in  the  English  language,  though  some  considerable  con- 
tributions have  been  made  to  financial  history." — Cohn^s  Science 
of  Finance. 

Since  this  was  written  Professor  Bastable  has  published  his 
Public  Finance,  and  Mr.  H.  C.  Adams  his  The  Science  of  Finance. 


64   THE  THEORY  AND  PRACTICE  OF  TAXATION. 

to  account.  Possibly,  owing  to  the  want  of  accord  among 
writers  on  economic  and  financial  subjects,  an  opinion 
has  come  to  prevail  that  no  consistent  treatment  of  the 
subject,  as  a  whole,  is  possible;  that  the  financial  and  in- 
dustrial condition  of  nations  or  states  differs  so  widely 
that  no  uniform  rules  of  practice  for  the  raising  of  reve- 
nue can  be  established ;  and,  finally,  if  such  a  code  of  rules 
were  universally  accepted,  the  varying  necessities  of 
nations  would  compel  its  violation,  or  complete  abandon- 
ment, in  periods  of  great  emergency. 

In  the  case  of  the  United  States  the  condition  of  the 
country  previous  to  the  civil  war,  as  already  pointed  out, 
was  very  curiously  such  as  to  create  great  indifference  to 
this,  in  common  with  almost  every  other  economic  or  finan- 
cial topic.  The  nation  and  the  several  States  composing 
it  were  at  the  period  referred  to  comparatively  free  from 
debt.  All  taxation  was  light.  Direct  taxation  by  the 
Federal  Government  had  become  a  matter  of  history,  no 
taxes  of  this  character  having  been  imposed  for  nearly 
half  a  century.  Pauperism  was  mainly  restricted  to  per- 
sons of  foreign  nativity,  while  to  all  who  were  willing  to 
practise  industry  and  economy,  the  ability  to  command 
a  good  subsistence,  if  not  an  ultimate  competence,  seemed 
comparatively  easy.  Why  should  a  nation  under  such 
circumstances  trouble  itself  about  difficult  and  intricate 
problems  in  finance  or  political  economy?  And  taking 
counsel  of  the  proverb,  "  Suflficient  unto  the  day  is  the 
evil  thereof,"  the  nation  did  not.  But,  with  the  advent 
of  war  in  1861,  the  creation  of  an  enormous  national  debt, 
and  a  gigantic,  unsystematic,  and  complex  system  of  taxa- 
tion, a  resort  to  irredeemable  paper  money  and  the  sus- 
pension of  specie  payments,  the  condition  of  things  as 
above  stated  rapidly  changed;  and  the  questions  and  prob- 
lems which  in  popular  estimation  were  before  insignificant 
have  rapidly  become  so  important  as  to  constitute  not 
only  the  theme  of  never-ending  popular  discussion,  but 
also  the  issues  which  mainly  divide  the  national  political 
parties  of  the  country.  And  as  illustrating  in  some  degree 
the  nature  and  strength  of  what  may  be  termed  the  motor 
or  impelling  influences  which  have  forced  these  changes 
in  public  opinion,  what  can  be  more  pertinent  than  the 
fact  that  the  State  of  New  York  alone  now  annually  raises 


ECONOMIC  DISCUSSION  IN  UNITED  STATES.        65 

by  taxation  to  meet  the  expenditures  of  State  and  local 
governments  a  sum  ($91,232,013  in  1890)  more  than  one 
half  in  excess  of  the  net  ordinary  expenditures  of  the  Fed- 
eral Government  in  1860  ($60,086,754).*  In  this  latter 
year  the  cost  to  the  people  of  the  United  States  for  the 
maintenance  of  their  national.  State,  and  local  govern- 
ments was  probably  less  than  three  dollars  per  capita. 
For  the  year  1890,  an  approximately  correct  estimate  for 
like  expenditures  was  $13.65  per  capita. 

These  questions  and  problems  have  not,  however,  come 
up  simultaneously  for  consideration,  but  have  been  gradu- 
ally evolved,  as  it  were,  from  the  changing  condition  of 
affairs,  and  somewhat  in  the  following  order:  First,  the 
national  debt  and  its  transition  from  a  miscellaneous  to  a 
consolidated  character;  second,  the  readjustment  of  the 
war  system  of  internal  taxation;  third,  the  question  of 
currency,  specie  redemption,  and  legal  tender — on  which 
topics  alone  more  than  five  hundred  separate  publications, 
books  and  pamphlets,  exclusive  of  congressional  speeches 
and  newspaper  articles,  have  been  issued  from  the  Ameri- 
can press ;  fourth,  the  "  Free  Trade  "  and  "  Protection  " 
question;  fifth,  the  monetary  metallic  standard  question; 
sixth,  the  relations  of  the  State  to  common  carriers,  and 
the  methods  of  internal  intercommunication ;  seventh,  the 
subject  of  local  or  State  as  contradistinguished  from  na- 
tional or  Federal  taxation ;  on  which  latter  topic,  although 
it  relates  to  methods  by  which  the  people  of  the  United 
States  at  present  annually  contribute  to  local  or  State 
governments  a  sum  nearly  equal  to  the  present  total  an- 
nual revenue  of  Great  Britain  from  all  imperial  taxes, 
there  had  not  been,  up  to  1870,  a  single  publication  in  the 
United  States  apart  from  official  reports  that  pretended 
intelligently  to  discuss  it.  Since  this  date,  however,  a 
much  greater  interest  has  been  manifested  on  this  sub- 
ject. Several  publications  of  great  merit,  exhibiting  the 
situation  in  its  legal  aspects,  and  the  theories,  controver- 
sies, and  experiences  of  the  past,  have  appeared ;  f    and 

*  The  budget  of  the  city  of  New  York  is  at  present  [1899]  up- 
ward of  $97,000,000  a  year. 

t  Of  such  publications  the  following  are  specially  worthy  of 
notice:  A  Treatise  on  the  Law  of  Taxation,  including  the  Law 
of  Local  Assessment,  by  Thomas  M.  Cooley,  one  of  the  justices  of 


QQ      THE  THEORY  AND  PRACTICE  OP  TAXATION. 

this  interest  has  been  especially  intensified  and  popular- 
ized by  the  scheme  of  the  so-called  "  single  tax,"  which, 
if  not  originated  by  Mr.  Henry  George,  has  been  so  ably 
advocated  by  him  as  to  have  attracted,  previous  to  the 
development  of  the  silver  problem,  more  of  popular  atten- 
tion on  both  sides  of  the  Atlantic  than  any  other  economic 
topic  brought  forward  during  the  present  century. 

Some  better  acquaintance  with  the  literature  of  taxa- 
tion than  has  hitherto  been  acquired  by  most  educated 
men  would  seem  to  be  essential  to  a  full  understanding 
of  many  of  the  great  events  in  the  world's  history,  inas- 
much as  nearly  all  great  political  revolutions  have  been 
primarily  occasioned  by  the  exercise  of  arbitrary  power 
in  compelling  contributions  of  property  from  the  masses 
by  those  in  authority.  Thus,  going  back  to  ancient  his- 
tory, the  disruption  of  the  Jewish  monarchy  and  the  seces- 
sion of  the  ten  tribes  were  due  to  the  refusal  of  the  suc- 
cessor of  Solomon  to  accede  to  the  demands  of  their  rep- 
resentatives that  he  should  abate  the  (tax)  exactions  of 
the  preceding  reign;  and  to  his  threat  in  response  that 
he  would  make  his  yoke  even  heavier  in  this  particular 
than  his  father's.  And  the  first  significant  act  recorded 
of  the  revolt  that  followed  was  the  stoning  to  death  of 
the  man  Adoram,  who  "  was  over  the  tribute,"  or  the  chief 
of  the  tax  collectors.* 

the  Supreme  Court  of  ]\lichigan,  1876;  A  Treatise  on  the  Law  of 
Taxation,  as  exercised  by  the  Government  of  the  United  States, 
by  W.  M.  Burroughs,  1877;  The  Law  of  Taxation,  by  Francis 
Hillard,  1875  (three  publications  in  which  questions  of  political 
economy,  as  not  necessarily  involved  in  discussion  of  legal  points, 
have  received  little  consideration)  ;  The  Shifting  and  Incidence 
of  Taxation,  1892  (second  edition,  1899),  Progressive  Taxation  in 
Theory  and  Practice,  1894,  Essays  on  Taxation.  1895,  by  Prof. 
Edwin  R.  A.  Seligman,  of  Columbia  College,  New  York,  three  pub- 
lications characterized  by  great  historical  research,  and  a  repertory 
of  information  not  otherwise  readily  accessible.  Cohn's  Science 
of  Finance,  a  recent  work  of  sufficient  merit  to  warrant  its  ti'ansla- 
tion  from  the  German  under  the  auspices  of  the  University  of 
Chicago,  is  nevertheless  of  such  a  character  that  it  will  never  be 
generally  read,  or  have  the  slightest  influence  on  the  mass  of  the 
people  of  a  country  like  the  United  States,  who  select  the  legis- 
lators who  determine  what  shall  be  the  policy  of  their  Government 
in  respect  not  only  of  taxation  but  of  all  other  fiscal  or  economic 
subjects. 

*  Although  Rehoboam  was  urged  to  make  concessions  to  the 


TAXATION  IN  HISTORY.  6Y 

After  the  Persian  war,  the  states  of  Greece,  united 
under  what  was  termed  the  confederation  of  Delos,  agreed 
to  make  contributions — i.  e.,  pay  taxes — to  Athens,  to  be 
used  by  her  for  the  common  defence;  and  these  contri- 
butions, assessed  in  the  first  instance  by  Aristides,  whose 
reputation  for  justice  commanded  the  confidence  of  all, 
occasioned  no  complaint.  But  finally  Athens,  having 
assumed  the  direction  of  the  confederacy,  not  only  in- 
creased the  contributions  beyond  the  assessments  of  Aris- 
tides, but  also  assumed  the  right  to  use  them  arbitrarily, 
notably  for  fortifying  and  beautifying  the  city.  The  re- 
sult was  a  revolt,  followed  by  the  Peloponnesian  war,  and 
from  that  date  and  occurrence  the  decline  of  Athens,  and 
indeed  of  all  the  states  of  Greece,  is  traceable. 

Oppressive  taxation  prompted  the  so-called  massacre  of 
the  "  Sicilian  Vespers  "  in  1282,  resulting  in  the  slaughter 
or  expulsion  of  all  the  French  from  the  island  of  Sicily. 

The  assumption  and  exercise  of  authority  on  the  part 
of  Pope  Leo  X  in  1517,  to  enforce  contributions  for  the 
rebuilding  of  the  cathedral  of  St.  Peter's  at  Eome  was,  as 
is  well  known,  the  primary  cause  of  the  disruption  of  the 
Roman  Catholic  Church,  the  Protestant  secession  led  by 
Luther,  and  the  almost  innumerable  wars  and  social  dis- 
turbances that  followed  in  consequence. 

The  history  of  the  struggle  of  the  people  of  England 
against  arbitrary  taxation  is  the  history  of  the  English 
Constitution.  Thus,  the  attempt  to  arbitrarily  collect  an 
unjust  poll  tax  was  the  primary  cause  of  the  rebellion  of 
Wat  Tyler  in  England  in  1378,  in  the  reign  of  Richard 
II ;  as  was  the  "  misuse  of  taxes "  the  occasion  of  the 
rising  of  the  commons  of  England  in  the  next  century 
(1450)  against  the  government  of  Henry  VI,  and  under 
the  leadership  of  Jack  Cade.* 

people,  whose  greatest  grievance  Avas  the  corvee  and  burdens  im- 
posed by  Solomon's  court  and  great  building  operations  at  Jeru- 
salem, he  is  reported  to  have  said:  "My  little  finger  shall  be 
thicker  than  my  father's  loins.  And  now  whereas  my  father  did 
lade  you  with  a  heavy  yoke,  I  will  add  to  your  yoke:  my  father 
hath  chastised  you  with  whips,  but  I  will  chastise  you  with 
scorpions."  The  name  Adoram,  says  Renan,  became  mythical  to 
designate  the  overseer  of  forced  labour. 

*  Recent  historical  investigations  favour  the  idea  that  the 
leader  of  this  rebellion  was  not  an  illiterate  rascal  and  buffoon — 


68       THE  THEORY  AND  PRACTICE  OF  TAXATION. 

Shakespeare,  who  apparently  analyzed  and  compre- 
hended the  subtle  philosophy  of  all  human  motives  and 
tendencies,  seems  also  in  the  play  of  Henry  VIII  to  ascribe 
the  fall  of  his  great  minister,  Wolsey,  to  abuse  of  the 
power  of  taxation;  and  whether  in  this  he  was  historically 
correct  or  not,  his  utterances  respecting  the  effect  of  such 
abuse  are  as  pertinent  to-day  as  ever,  and  in  some  respects 
remarkably  applicable  to  the  depression  that  in  recent 
)'ears  has  come  to  one  great  department  of  the  domestic 
industries  of  the  United  States  through  injudicious  taxa- 
tion of  the  crude  material — wool — that  constitutes  its 
foundation : 

"  The  subject's  grief 
Comes  through  commissions,  which  compel  from  each 
The  sixth  part  of  his  substance,  to  be  levied 
Without  delay;   .  .  .  this  makes  bold  mouths: 
Tongues  spit  their  duties  out ;  and  it's  come  to  pass. 
This  tractable  obedience  is  a  slave 
To  each  incensed  will." 

"  For,  upon  these  taxations, 
The  clothiers  all,  not  able  to  maintain 
The  many  to  them  'longing,  have  put  off 
The  spinsters,  carders,  fullers,  weavers,  who, 
Unfit  for  other  life,  compelled  by  hunger. 
And  lack  of  other  means,  in  desperate  manner 
Daring  the  event  to  the  teeth,  are  all  in  an  uproar, 
And  Danger  serves  among  them." 

The  great  revolution  in  England  (1642-1659),  by  which 
the  constitutional  rights  of  her  people  were  finally  estab- 
lished, wherein  Charles  I  lost  both  his  crown  and  his  head, 
was  caused  by  a  question  of  taxation.  And  subsequently 
the  attempt  of  Great  Britain  to  tax  her  American  colonies 
without  their  consent  was  also  the  primary  cause  of  the 
American  Eevolution ;  *  while  later  the  demonstrated  in- 
one  of  "  the  filth  and  scum  of  Kent,"  as  portrayed  by  Shakespeare 
in  Henry  VI — but  rather  a  gentleman  of  gentle  and  possibly  of 
noble  birth. 

*  Recent  historical  investigations  (by  Professor  Tyler)  have 
shown  that  the  demand  "  no  taxation  without  representation." 
which  has  been  popularly  regarded  as  one  of  the  prime  causes 
that  contributed  to  the  revolt  of  the  British  American  colonies 
in  1775  and  their  subsequent  independence,  "did  not  mean  that 
the  colonies  could  not  be  lawfully  taxed  by  Parliament  when  they 
had  no  representatives  in  Parliament.    It  was  a  demand  applicable 


PREJUDICE  AGAINST  WEALTH.  69 

ability  of  maintaining  a  harmonious  and  efficient  govern- 
ment under  the  Articles  of  Confederation,  which  per- 
mitted the  several  States  that  were  parties  thereto  to  in- 
terfere with  their  mutual  trade  and  commerce  by  multiple 
and  conflicting  systems  of  taxation,  was  one  of  the  prin- 
cipal factors  that  led  to  the  formation  and  adoption  of  the 
Federal  Constitution. 

It  is  also  now  generally  admitted  that  to  the  cruel  and 
extraordinary  abuse  of  the  power  of  taxation,  more  than 
to  any  other  one  agency,  is  attributable  not  only  the  French 
Eevolution,  but  the  extraordinary  ferocity  with  which  it 
was  conducted. 

No  text  in  the  New  Testament  has  been  so  little  under- 
stood for  want  of  any  recognition  of  its  connection  with 
the  subject  of  taxation,  as  that  one  which  declares  that 
"  it  is  easier  for  a  camel  to  go  through  the  eye  of  a  needle 
than  for  a  rich  man  to  enter  into  the  kingdom  of  God." 
By  many  theologians  and  secular  advocates  of  social  re- 
form— the  Russian  Tolstoi  being  a  recent  notable  example 
of  the  latter — it  has  been  regarded  as  a  disapproval  of  the 
attainment  or  accumulation  of  wealth,  and  has  doubtless 
served  as  the  basis  for  innumerable  sermons  on  the  "  sin 
of  riches  " ;  when  a  little  reflection  and  acquaintance  with 
social  economy  would  have  led  to  the  conclusion,  as  Buckle 
has  clearly  expressed  it,  "  that  of  all  the  results  which 

to  the  three  orders  of  the  English  body  politic — kings,  lords,  and 
commons — and  meant  that  the  commons  could  not  be  taxed  when 
they  were  not  represented.  But  the  commons  represented  the 
cities  of  Leeds,  Halifax,  INIanchester,  Birmingham,  and  Liverpool 
in  Parliament,  although  none  of  them  had  any  vote  or  personal 
representation  in  it  at  the  time  of  the  American  revolt  or  for  a 
long  time  afterward.  Indeed,  only  one  tenth  of  the  people  of  the 
United  Kingdom  had  then  any  vote.  The  commons  represented 
Massachusetts  in  the  same  way  that  they  represented  Manchester. 
That  this  was  an  unsatisfactory  kind  of  representation  will  be 
admitted  without  argument,  but  it  was  not  in  contravention  of 
the  maxim  quoted,  which  has  come  down  to  us  as  a  legal  justi- 
fication for  the  war.  It  would  have  been  strange  indeed  if  the 
English  Constitution  had  contained  within  itself  a  justification 
for  breaking  up  the  British  Empire."  The  separation  of  the  colo- 
nies from  the  mother  country  was  therefore  not  a  legal  step,  but 
an  act  of  revolution,  and  suggests  a  remark  attributed  to  Mr. 
Lincoln  at  the  outbreak  of  our  civil  war,  that  "  it  was  a  consti- 
tutional procedure  for  overthrowing  the  Constitution."  See  Liter- 
ary History  of  the  American  Revolution,  by  Moses  Coit  Tyler. 


70       THE   THEORY  AND   PRACTICE   OF   TAXATION. 

arc  produced  among  a  people  by  their  climate,  food,  and 
soil,  the  accumulation  of  wealth  is  the  most  important. 
For,  although  the  progress  of  knowledge  eventually  accel- 
erates the  increase  of  wealth,  it  is  nevertheless  certain  that 
in  the  first  formation  of  society,  wealth  must  accumulate 
before  knowledge  can  begin,  because  without  wealth  there 
can  be  no  taste  or  leisure  for  that  acquisition  of  knowledge 
on  which  the  progress  of  civilization  depends."  And  sure- 
ly a  disapproval  of  this  almost  self-evident  truth  could  not 
have  been  the  intent  of  an  inspired  teacher.  To  under- 
stand the  true  meaning  of  this  text  it  is  necessary  to  go 
back  and  consider  the  time  and  circumstances  under  which 
the  declaration  it  embodies  was  made.  Judea  at  this  period 
was  a  subjugated  Eoman  province,  and  what  the  wisest 
and  best  men  of  Eome  thought  of  the  people  of  such 
provinces  and  of  the  right  of  Eome  to  grind  down  the 
nations  that  it  had  subjugated,  is  clearly  shown  by  the  fol- 
lowing extract  from  the  oration  of  Cicero  against  Verres, 
who  was  prosecuted  for  extortion  when  governor  of  the 
province  of  Sicily :  "  If,"  he  said,  "  we  have  esteemed  the 
revenues  of  the  provinces  as  the  nerves  of  the  republic, 
we  shall  not  hesitate  to  say  that  the  order  which  raises 
them  is  the  mainstay  of  the  other  orders.  The  provinces 
and  countries  subject  to  tribute  are  the  lands  of  the  Eoman 
people.  If  Verres  is  guilty,  it  is  not  because  of  his  ra- 
pacious exactions,  but  because  he  diverted  them  to  his  own 
use  rather  than  to  that  of  the  republic."  And  as  for  the 
sufferings  of  the  tributary  people,  he  alludes  to  them  for 
the  necessities  of  his  cause,  but  he  regards  them  of  so 
little  importance  that  in  his  oration  for  Fonteius  he  ex- 
claims :  "  Who  are  his  accusers  ?  Barbarians !  Men  who 
wear  breeches  and  smocks !  Can  the  most  reputable  of  the 
Gauls  be  placed  on  a  par  with  the  least  and  most  wretched 
of  Eoman  citizens  ?  "  The  Eomans,  in  fact,  regarded  their 
provinces  as  valuable  only  to  the  extent  that  they  could 
make  them  available  for  extorting  tribute  (taxes),  and  the 
most  effective  instrumentalities  they  could  employ  for  this 
purpose  were  unpatriotic  or  renegade  citizens  of  the  prov- 
inces who  understood  the  habits,  pursuits,  and  amount 
and  distribution  of  the  property  of  their  fellow-country- 
men. These  in  the  case  of  Judea  were  Eomanized  or 
apostate  Jews,  who,  in  accordance  with  the  Eoman  custom, 


LOW  ESTIMATE   OF   PUBLICANS.  71 

were  invested  with  a  power,  which  they  undoubtedly  exer- 
cised, to  administer  torture  in  case  it  was  found  necessary 
to  enforce  payments  from  unwilling  or  impoverished  sub- 
jects. 

Again,  as  there  was  little  industry  at  the  time  save 
agriculture,  and  markets  were  limited,  there  was  little 
opportunity  for  a  Jew  to  become  rich,  except  by  favour 
of  the  Eomans  and  plunder  of  his  people;  and  with  these 
latter  the  publican  or  tax-gatherer  and  the  rich  man,  who 
must  have  been  often  one  and  the  same,  became  so  abhor- 
rent, that  they  naturally  classified  and  placed  them  upon 
the  same  plane  with  notorious  sinners  and  the  most  de- 
spised and  degraded  members  of  society — the  harlots  * — 
for  whom  an  entrance  into  the  kingdom  of  heaven  was 
regarded  as  an  impossibility. 

And  in  this  connection  it  is  pertinent  to  recall  that 
Jesus  visited  the  house  of  "  a  man  named  Zaccheus,  which 
was  the  chief  among  the  publicans,  and  he  was  rich."  .  .  . 
"And  when  they"  (the  people)  "saw  it  they  all  mur- 
mured, saying  that  he  was  gone  to  be  guest  with  a  man 
that  is  a  sinner.  And  Zaccheus  stood  and  said  unto  the 
Lord:  Behold,  Lord,  the  half  of  my  goods  I  give  to  the 
poor;  and  if  I  have  taken  anything  from  any  man  by  false 
accusation,  I  restore  him  fourfold."  And  evidently  in 
consequence  of  this  declaration,  "  Jesus  said  unto  him, 
This  day  is  salvation  come  to  this  house,  forasmuch  as  he 
also  is  a  son  of  Abraham"  (and  not  a  foreigner).  "For 
the  Son  of  man  is  come  to  seek  and  to  save  that  which 
was  lost  "  (i.  e.,  the  publicans). 

In  ancient  Greece  also  there  was  a  familiar  proverb 
that  used  the  term  "  publican  "  as  synonymous  with  that 
of  "  robber  "  ;  and  Tacitus,  the  Eoman  historian,  in  his 
description  of  the  German  people,  regards  them  as  fortu- 
nate in  having  no  publicans  to  impoverish  (atterere)  them. 

On  the  other  hand,  in  the  case  of  the  Romans  who 
had  little  sensitiveness  as  to  the  manner  in  which  public 
revenue  or  private  wealth  was  attained,  the  publicans  who 
collected  the  customs  were  held  in  high  honour,  and  were 

*  "  Verily,  I  say  unto  you,  that  the  publicans  and  the  harlots 
go  into  the  kingdom  of  God  before  you." — S.  Matthew,  xxi,  SI. 

"  For  John  came  unto  you  and  ye  believed  him  not ;  but  the 
publicans  and  the  harlots  believed  him." — 8.  Matthew,  xxi,  32. 


72      THE  THEORY  AND  PRACTICE  OP  TAXATION. 

characterized  as  the  flower  of  the  nobility  {"  fios  equitum 
Romanorum  "). 

Another  point  of  interest  in  connection  with  this  im- 
mediate subject,  and  one  which  has  been  generally  over- 
looked, is  that  the  answer  which  Jesus  gave  to  the  Jews, 
who  put  to  him  the  question,  "  Is  it  lawful  to  give  tribute 
to  CfBsar  ?  " — namely,  "  Kcnder  unto  CfEsar  the  things  that 
are  Caesar's  " — expresses  a  fundamental  principle  in  po- 
litical economy,  in  that  it  enjoins  payment  on  the  part  of 
citizens  or  subjects  of  such  tribute  (taxes)  as  the  govern- 
ment (typified  by  Csesar)  under  which  they  live  may  law- 
fully be  entitled  to  demand  for  its  support;  and  at  the 
same  time  withholds  sanction  from,  and  so  by  implication 
denies,  the  right  of  a  government  to  take  that  to  which 
it  is  not  entitled  (or  which  is  not  Cgesar's),  which  it  does 
when  it  exacts  tribute  or  taxes  for  any  other  purpose  than 
its  legitimate  support,  or,  what  is  the  same  thing,  for  the 
benefit  of  individual  or  private  interests.  In  other  words, 
the  answer  recognises  a  broad  line  of  distinction  between 
the  rights  of  Caesar,  or  the  government,  and  other  rights 
in  respect  to  property ;  and  indicates  that  Caesar,  or  a  gov- 
ernment, can  find  no  justification,  in  virtue  of  power  to 
compel  the  payment  of  tribute  or  taxes,  to  appropriate 
property  (of  the  people)  under  circumstances  in  which 
similar  action  on  the  part  of  a  private  citizen  would  be 
considered  robbery. 

The  casual  observer  would  hardly  imagine  that  there 
was  any  relation  between  anthropology  (the  science  of 
man)  and  taxation;  and  yet  writers  on  the  laws  of  nations 
from  an  early  period,  and  economists  of  a  later  day,*  have 
called  attention  to  the  circumstance  that  different  races 
seem  to  possess  different  moral  aptitudes  for  different 
forms  of  taxation.  Thus  it  is  claimed  that  in  countries 
inhabited  by  the  pure  Germanic  race,  or  its  leading 
branches — in  Germany,  Scandinavia,  Great  Britain,  and 
the  United  States — the  desire  and  ability  for  self-govern- 
ment, and  the  disposition  to  place  authority  near  to  the 
individual  or  in  his  town  or  locality,  favour  voluntary 
taxation  and  a  great  endurance  of  burden  in  view  of  the 

*  Macehiavelli  and  other  Italian   publicists  in  the  seventeenth 
century,  and  M.  de  Parieu,  a  French  economist,  in  1855. 


TAXATION  IN  LITERATURE.  73 

attainment  of  a  right  result;  whereas  among  the  Latin 
races  the  tendency  is  to  concentrate  all  authority,  and 
generally  in  a  military  form,  in  the  state,  and  require  pas- 
sive submission  to  the  exercise  of  it  on  the  part  of  the 
people.  Hence,  general  taxes  on  property  and  income, 
which  require  for  their  successful  application  a  certain 
degree  of  loyalty,  of  patience,  and  even  of  voluntary  co- 
operation on  the  part  of  taxpayers,  and  which  find  favour 
among  the  former  races,  hardly  exist  among  the  latter.  It 
is  interesting  also  to  note,  in  connection  with  this  subject, 
that  the  restitution  to  the  Government  of  what  is  termed 
"  conscience  money,"  which  is  of  constant  occurrence  in 
Germany,  Great  Britain,  and  the  United  States,  is  said  to 
be  very  inconsiderable  or  wholly  lacking  in  the  states  of 
the  Latin  races. 

The  comparatively  insignificant  position  which  the 
subject  of  taxation  holds  in  economic  literature  has  already 
been  pointed  out.  Its  relation  to  general  literature  is 
similar,  and  perhaps  even  more  remarkable.  Since  sin 
came  into  the  world,  there  has  probably  been  no  one  purely 
human  agency  more  prolific  of  crime  and  human  suffer- 
ing and  of  temptation  to  do  wrong  than  the  multitude  of 
arbitrary,  impolitic,  and  absurd  laws  which  have  been  en- 
acted to  unjustly  exact  from  the  people  contributions  of 
their  labour  and  property  under  the  name  of  taxation, 
and  yet  the  utilization  of  these  experiences  by  novelists 
and  dramatic  authors  has  been  almost  entirely  restricted 
to  the  comparatively  petty  transactions  of  smugglers  and 
the  illicit  producers  of  distilled  spirits.  Even  the  ter- 
rible tax  incidents  which  preceded  and  in  fact  occasioned 
the  great  French  Kevolution,  have  not  entered  largely  as 
an  element  into  more  than  one  or  two  works  of  fiction 
of  acknowledged  merit  in  the  English  language.*  As  a 
field  of  morals  also,  this  subject  has  been  almost  entirely 
ignored,  and  rarely  entered  upon  by  theologians;  and  yet 
under  the  tax  laws  of  the  United  States,  to  say  nothing 
of  other  countries,  the  practice  of  perjury  is  encouraged 

*  The  only  work  of  fiction  of  this  character  knoAvn  to  the  writer 
is  Gabrielle  Andre,  by  S.  Barinjj-Gould  (D.  Appleton  &  Co.,  New 
York,  1871),  in  which  the  conditions  of  taxation  existing  in  France 
prior  to  the  Revolution  of  1788-'89  are  instructively  used  as  the 
basis  of  a  historical  story. 
6 


74:       THE  THEORY  AND  PRACTICE  OP  TAXATION. 

and  tolerated  to  a  degree  that  is  utterly  inconsistent  with 
the  existence  of  any  high  standard  of  public  morality,  or 
any  rational  religious  belief.*  And  so  also  in  the  depart- 
ment of  history.  How  few  of  those  who  consider  them- 
selves well  read  and  well  informed,  recognise  that  the 
terrible  decadence  of  Spain  up  to  1808  is  attributable 
more  to  the  influence  of  a  tax  on  sales  (the  Alcavala)  than 
to  any  other  one  cause;  and  that,  on  the  other  hand,  the 
great  wealth  and  prosperity  of  Holland  in  the  sixteenth, 
seventeenth,  and  eighteenth  centuries,  and  the  control  of 
a  commerce  that  made  its  ships  the  chief  carriers  and  their 
ports  the  chief  depots  of  the  products  of  the  world,  were 
due  mainly  to  a  system  of  taxation  that  imposed  the  mini- 
mum of  restriction  on  exchanges,  domestic  or  foreign, 
and  entailed  the  least  friction  upon  its  own  people;  while 
in  all  other  and  competitive  countries  the  direct  reverse 
of  such  a  fiscal  policy  found  favour  and  existed. 

The  Place  of  Taxation  in  History. — A  clear  and 
exhaustive  statement  of  the  world's  experience  in  respect 
to  what  is  called  taxation  would  be  almost  equivalent  to 
a  universal  history ;  and  in  default  of  this,  a  review  of  the 
most  prominent  features  of  such  experience  is  the  only 
alternative,  and  is  capable  of  being  made  in  the  highest 
degree  interesting  and  instructive. 

While  the  farthest  reach  of  history  touches  no  period 
when  government  or  the  state  has  not  appropriated  for  its 
maintenance  or  pleasure  the  property  or  services  of  its  sub- 
jects or  citizens,  the  present  ideas  respecting  taxation  are 
so  essentially  modern  that  little  or  no  recognition  of  them 

*  On  this  topic  a  leading  American  clergyman  writes  as  fol- 
lows :  "  It  is  probably  a  good  thing  that  clergymen  have  not 
preached  numerous  sermons  on  taxation,  even  on  its  moral  and 
religious  aspects.  That  they  have  hitherto  been  ignorant  on  the 
subject  is  not  so  much  their  fault  as  their  misfortune,  and  being 
ignorant  on  the  details  of  this  matter  they  have  not  taken  it  as 
the  theme  of  set  discourses.  But,  judging  by  my  own  experience, 
they  have  preached  on  the  application  of  moral  principles  to  every 
department  of  life,  and  on  the  obligation  of  a  man  to  be  honest 
in  his  dealings  with  govei'nment  no  less  than  with  individuals. 
That  taxation  has  moral  relations  and  qualities  they  have  per- 
ceived and  stated,  and  that  probably  was  as  far  as  their  qualifica- 
tions authorized  them  to  proceed.  Whether  the  present  encyclo- 
pedic education  will  give  us  the  more  serviceable  clergymen  re- 
mains to  be  seen." 


THEORY  OP  LAND  TENURES.  75 

can  be  found  in  either  ancient  or  mediaeval  hietory.  In 
fact,  no  taxes,  in  the  present  ordinary  sense  of  the  term, 
were  needed  in  ancient  times  to  carry  on  government  or 
public  institutions.  The  monarch,  king,  chief,  lord,  or 
other  sovereign  of  any  particular  district  or  country  was 
generally  the  owner  of  all  the  landed  property  within  his 
empire  or  domain;  and  the  people  who  cultivated  it  were 
his  villeins,  serfs,  or  tenants.  "  The  theory  of  English 
[and  also  of  Chinese,  it  may  be  added]  land  tenures  to- 
day is,  that  the  original  title  is  in  the  king,  and  that  every- 
body who  has  an  interest  in  land  is  a  tenant.  There  is  no 
such  thing  known  in  England,  though  it  may  be  in  some 
other  countries,  as  an  allodial  title;  that  is,  one  which  is 
absolute  as  to  the  ownership  of  the  soil."  All  land  in  Eng- 
land is  held  mediately  or  immediately  of  the  king,  and 
there  is  no  allodial  tenure.* 

A  sovereign  who  owned  all  the  land  of  a  country,  and 
could  at  his  will  take  any  portion  of  the  labour  products 
of  the  people  who  cultivated  or  occupied  it,  obviously  was 
exempt  from  the  necessity  of  resorting  to  any  other  form 
of  levy  upon  persons  or  property  for  the  support  of  the 
state  or  for  his  pleasure ;  and  this  mode  of  appropriating 
property  by  the  governing  power  has  prevailed  in  almost 
every  country  of  the  Old  World  of  which  we  have  any 
fiscal  record,  at  some  period  of  its  history.  At  the  same 
time  all  history  teaches  that  the  actual  administration  of 
such  governments  has  been  very  generally,  and  perhaps  as 
a  rule  unnecessarily,  oppressive  by  reason  of  the  manner 
of  collecting  or  exacting  the  tribute  or  contributions  from 
the  people,  or  by  the  spoliations  of  the  officials  to  whom 
the  business  was  intrusted.  Throughout  the  Eastern  world 
the  general  practice  under  its  native  princes  has  been,  and 
even  still  is,  for  the  tribute  or  tax  collectors  to  pay  them- 
selves by  peculations,  and  to  extort  from  the  cultivator 


*  Miller's  Lectures  on  the  Constitution  of  the  United  States, 
pp.  231,  232:  "Out  of  this  fact  come  many  of  the  difTiculties 
American  students  find  in  regard  to  the  doctrines  pertaining  to 
estates  and  tenancies.  Our  laws  have  been  freed  from  a  large  part 
of  these  intricacies  and  traditional  requirements,  which  were  the 
outgrowth  of  centuries  of  development  among  our  English  ances- 
tors regarding  the  holding  of  land,  but  their  influence  still  embar- 
rasses our  judicial  system." 


76       THE  THEORY  AND   PRACTICE  OP  TAXATION. 

the  utmost  farthing  that  could  be  taken  without  compel- 
ling him  to  abandon  his  fields.  Thus  under  the  Sikh 
dynasty  of  India,  which  was  founded  by  a  petty  chieftain 
on  the  ruins  of  the  Mogul  Empire  at  the  close  of  the  last 
century  and  continued  until  1846,  the  custom  was  to  take 
from  the  peasant  the  equivalent  of  six  shillings  out  of 
every  twelve  shillings'  value  of  his  produce  in  the  name 
of  rent;  but  under  the  present  British  rule  the  govern- 
ment takes  from  the  descendants  of  these  same  peasants 
only  one  or  two  shillings  in  the  form  of  taxes.  It  is  not 
necessary,  however,  to  go  to  Eastern  experiences  for  illus- 
trations of  how  the  burden  of  taxation  can  be  made  ter- 
ribly oppressive  by  the  method  of  taking,  inasmuch  as  in 
1598  (according  to  Sully  *),  out  of  one  hundred  and  fifty 
millions  extorted  from  the  taxpayers  of  France  in  that 
year,  only  thirty  millions  found  their  way  into  the  public 
treasury.  It  is  stated  as  a  not  infrequent  occurrence  that 
prior  to  the  great  Revolution  of  1789,  a  duty  was  levied 
twenty-seven  times  on  a  barrel  of  wine  in  the  course  of 
its  transportation  from  the  place  where  it  was  grown  to 
that  where  it  was  sold;  so  that  it  was  said  to  be  cheaper 
to  send  wine  from  China  to  France  than  from  one  of  the 
departments  of  France  to  Paris. 

It  is  also  to  be  noted  that  in  ancient  times  war,  both  in 
Eastern  countries  and  in  Europe,  was  almost  the  normal 
state  of  mankind,  and  victorious  nations  supported  and 
enriched  themselves  from  the  plunder  and  tribute  of  the 
vanquished.  The  land  especially  of  subjected  people  be- 
came the  property  of  the  conquerors,  and  payments  in  the 
nature  of  rents  rather  than  taxes  were  exacted  from  its 
occupants  and  cultivators. 

Taxation  in  China. — A  curious  perpetuation  in 
many  respects  of  these  ancient  methods  is  yet  to  be  found 
in  the  present  system  of  raising  funds  for  defraying  the 
expenses  of  the  Government  in  China,  and  concerning 
which  little  has  been  definitely  known  until  within  a  very 
recent  period.  With  the  exception  of  certain  limited 
grants  held  by  Manchu  princes  in  consideration  of  remote 
military  services,  all  the  land  of  the  empire  is  regarded 

*  Memoirs  of  Sully ;  quoted  by  McCulloch  in  Treatise  on  Taxa- 
tion, p.  30. 


TAXATION  IN  CHINA.  Y7 

as  the  property  of  the  emperor,  and  all  original  titles  to 
land  are  held  directly  from  him  subject  to  three  condi- 
tions :  *  First,  the  payment  of  a  land  tax ;  second,  the  pay- 
ment of  fees  when  the  crown  title-holder  or  his  successors 
sell  mortgages,  or  leases;  third,  the  supplying  of  certain 
labour  service  when  demanded  by  the  authorities.  The 
land  tax,  which  is  exacted  from  all  arable  land,  varies  in 
amount  according  to  the  productiveness  of  the  land,  and 
does  not  ordinarily  exceed  one  twentieth  of  the  gross 
product.  There  is  no  tax  on  waste  and  uncultivated  land, 
and  rights  in  common  exist  in  respect  to  waste  land  ad- 
joining villages.  The  fees  incident  to  the  alienation  of 
land  are  nominally  about  three  per  cent  of  the  purchase 
money,  but  usually,  by  extortion,  range  from  five  to  six 
per  cent.  The  supplying  of  labour,  when  demanded  by  the 
authorities,  is  not  well  defined,  and  is  apparently  limited 
to  furnishing  the  Government  with  transportation  and 
labour  on  the  public  works,  especially  the  repairing  of 
dikes  and  canals.  If  these  conditions  are  complied  with, 
the  state  rarely  interferes  with  the  possession,  alienation, 
or  rental  of  land  by  its  subjects.  When  land  is  rented  the 
Government  tax  is  paid  by  the  landlord,  and  not  by  the 
tenant.  The  district  magistrate  is  tax  assessor,  tax  col- 
lector, judge,  and  administrator. 

In  China,  where  no  part  of  the  national  income,  except 
what  is  obtained  from  the  foreign  maritime  customs,  is 
collected  directly  by  experts  of  the  Imperial  Government, 
the  opportunities  for  peculation  and  oppression  are  many. 
All  the  collectors  of  the  revenue,  with  the  exception  noted, 
are  agents  of  the  provincial  governors,  and  responsible 
only  to  them.  A  Board  of  Eevenue  at  Peking  prepares 
the  budget,  and  apportions  the  amount  needed  for  the  en- 
suing year,  among  the  various  treasuries  and  collectorates 
throughout  the  empire.  After  these  demands  have  been 
satisfied  any  surplus  revenue  belongs  to  the  provincial 
authorities,  to  be  expended  or  retained,  as  seems  best  to 
them.     As  the  demands  from  the  emperor  become  larger. 


*  It  is  even  asserted  that  there  is  at  the  present  time  but  one 
person  in  all  China  who  holds  an  absolute  freehold  title  to  any 
real  estate,  and  he  in  virtue  of  being  a  lineal  descendant  of  the 
Ming  dynasty  which  the  Manchus  supplanted. 


78   THE  THEORY  AND  PRACTICE  OP  TAXATION. 

the  rulers  of  the  provinces  become  more  exacting.  There 
is  never  any  decrease  in  taxation :  the  tendency  is  ever  the 
other  way.  Remission  of  land  taxes  is  made  when  any 
great  calamities  occur,  as  floods,  famines,  and  fires,  and 
in  such  cases  the  tenant  shares  in  the  remission.  Hardly 
a  year  passes  without  considerable  reductions  being  made 
on  the  pica  of  droughts  or  floods,  and,  when  the  returns 
of  the  crops  show  that  the  year  is  not  one  of  plenty,  the 
viceroy  or  commissioner  need  remit  only  eight  tenths  of 
the  sum  apportioned  on  his  district.  It  has  been  esti- 
mated that  the  land  tax  should  yield  138,000,000  taels  a 
year,  were  it  honestly  collected.  The  actual  returns  to  the 
imperial  treasury  from  this  tax  are  only  25,000,000  taels. 

Another  important  item  in  the  imperial  revenues  of 
China  is  the  monopoly  of  salt.  The  importation  of  foreign 
salt  is  indicated  by  the  treaties,  and  the  prohibition  is 
strictly  enforced.  While  there  is  no  restriction  on  the 
amount  of  salt  made  in  the  empire,  all  that  is  produced 
must  be  sold  to  the  Government.  Other  sources  of  imperial 
revenue  in  China,  apart  from  this  monopoly,  are  from  taxes 
on  goods  brought  through  the  gates  of  towns  and  cities, 
which  appear  to  be  analogous  to  the  European  octroi  taxes ; 
from  export  and  import  duties,  which  are  of  modern 
origin;  and  from  the  sale  of  honours  or  titles.*  There 
appear  to  be  no  taxes  on  personal  property  in  China;  but 
in  Pekin,  and  probably  in  other  cities,  small  license  fees 
are  required  from  certain  occupations  and  manufactures, 
ostensibly  for  defraying  municipal  expenditures. 

Owing  to  the  increasing  absorption  by  the  imperial 
Government  of  provincial  revenues,  the  seaboard  provinces 
resort  more  to  inland  duties,  which  are  so  high  and  nu- 
merous as  to  impede  trade.  The  privilege  of  "  transit 
passes  "  was  intended  to  reduce  and  regulate  the  inland 
dues,  as  well  as  to  transfer  revenue  from  the  provincial 
into  the  imperial  treasury.  The  result  is  not  satisfactory, 
largely  through  the  continuous  struggle  between  the  local 
head  and  the  emperor  to  secure  the  benefit.     Likin  was 

*  The  customs  revenvie  of  China  for  the  year  1893  was  reported 
as  £3,646,350  (or  $18,331,750),  of  which  fiilly  one  third  was  de- 
rived from  the  duties  on  opium.  The  average  rate  of  duties  on 
other  importations  was  about  six  per  centum  of  their  entered 
valuation. 


LIKIN  TAX  IN  CHINA.  79 

originally  regarded  as  an  illegal  exaction,  but  is  now  au- 
thorized by  imperial  decree.  In  its  present  shape  it  first 
appeared  about  1853,  became  universal  after  the  Taiping 
rebellion,  1860-'61,  and  is  now  based  upon  a  notification 
of  1865.  It  is  asserted  that  the  whole  of  the  likin  is  borne 
by  the  trade  of  the  Yangtse  and  Canton  Rivers  on  the 
likin  barriers.  An  English  expert,  Mr.  Jamieson,  writes : 
"  Their  numbers  and  frequency  depend  on  the  amount  of 
the  trade  and  the  extent  to  which  it  will  stand  taxing  with- 
out being  absolutely  strangled.  In  some  places,  as  along 
the  lower  parts  of  the  Grand  Canal,  the  barriers  follow 
one  another  at  intervals  of  twenty  miles  or  so.  In  other 
places,  where  trade  is  scanty  and  the  barriers  can  be  turned 
by  detours,  there  are  few,  if  any.  A  tariff  is  arranged,  and 
is  supposed  to  be  published  for  general  information,  but 
nothing  is  more  difficult  than  to  get  accurate  information 
either  from  the  merchants  or  officials  on  this  point.  In 
point  of  fact,  neither  party  seems  to  pay  much  attention 
to  the  authorized  tariff.  Nearly  all  boats  are  passed  by  a 
system  of  bargaining,  the  officials  ask  so  much,  the  mer- 
chant makes  a  bid,  and  they  haggle  till  they  come  to  terms." 

Likin  is  a  duty  on  merchandise  in  transit,  and  the 
transit  pass  was  to  make  that  duty  unnecessary.  To  neu- 
tralize this  concession  a  tax  called  "  loti  shui "  has  been 
devised,  and  may  be  either  a  terminal  tax,  collected  on 
the  goods  in  their  final  market,  or  a  growers'  tax,  levied 
on  the  land  or  produce  before  the  latter  has  reached  the 
foreign  merchant,  who  could  claim  the  protection  of  a 
transit  pass.  "  It  further  appears  that  the  likin  is  being 
extended  to  industrial  works  directly  and  apart  from  taxa- 
tion of  the  produce.  It  recently  came  under  my  notice 
that  a  fee  of  two  hundred  taels  was  paid  to  the  likin  office 
for  a  license  to  open  a  new  brick  factory,  and  for  some 
time  the  silk  weavers  in  Soochow  have  been  paying  a 
small  monthly  levy  per  loom  as  likin.  An  attempt  to  in- 
crease it  produced  a  riot.  There  is  in  fact  no  branch  of 
the  national  industry,  apparently,  to  which  this  tax  may 
not  be  applied — the  only  limit  being  the  fear  of  a  riot."  * 

The  imperial  revenue  of  China  is  believed  to  be  about 

*  See  a  report  made  in  1896  by  H.  B.  M.  consul,  Mr.  Jamieson, 
>   on  the  revenue  and  expenditure  of  the  Chinese  Empire. 


80   THE  THEORY  AND  PRACTICE  OP  TAXATION. 

85,000,000  taels,  or,  taking  the  value  of  the  haikwan  or 
customs  tael  for  1896,  $68,850,000  per  annum,  although 
the  sum  actually  collected  is  probably  much  greater,  the 
part  that  is  unaccounted  for  being  absorbed  in  the  taking 
by  the  prominent  officials.  Under  any  circumstances,  how- 
ever, the  great  mass  of  the  people  of  China  are  not  heavily 
taxed ;  and  their  system  of  administration,  except  as  it  con- 
cerns the  transit  of  foreign  imports  and  exports,  has  few 
inquisitorial  and  annoying  features ;  and  to  the  absence  of 
these  the  permanency  of  the  Chinese  Government  for  so 
long  a  period,  and  the  tranquility  and  contentment  of  the 
Chinese  people  may,  in  a  great  degree,  be  attributed. 

Taxation  in  Japan. — Another  example  of  an  ancient 
system  of  taxation,  which  until  a  recent  period  has  been 
subjected  to  very  little  change,  is  to  be  found  in  the  case 
of  Japan.  In  this  country,  as  in  China,  the  system  of  taxa- 
tion is  now,  as  it  always  has  been,  essentially  a  land  tax, 
but  greatly  modified  in  recent  years  to  conform  to  modern 
conditions.  During  the  feudal  period  in  Japan,  taxes  were 
for  the  most  part  paid  in  kind  by  the  cultivators  of  the 
soil,  and  were  in  fact  a  form  of  rent  due  to  the  lord  of  the 
soil.  Under  the  oldest  regime,  when  the  emperor  was  the 
real  as  well  as  the  nominal  head  of  the  government,  the 
land  was  divided  into  nine  squares,  the  central  one  of 
which  was  cultivated  by  the  holders  of  the  other  eight,  for 
the  use  of  the  emperor,  who  thus  received  one  ninth  part 
of  the  total  product  of  the  soil.  During  the  fifteenth  cen- 
tury, when  the  military  chieftains — the  daimios  or  Sho- 
guns — had  gradually  usurped  the  real  power  of  the  em- 
peror, a  much  larger  proportion  of  the  produce  of  the  land 
was  exacted ;  seldom  less  than  four  tenths  of  the  total  crop, 
and  sometimes  as  much  as  two  thirds.  The  staple  food 
of  the  country  being  rice,  the  taxes  were  almost  invariably 
collected  in  that  commodity.  The  amount  paid,  however, 
was  not  fixed  by  any  national  measure,  but  varied  from 
province  to  province,  depending  on  local  customs,  the 
humor  of  the  daimio,  or  other  circumstances.  Moreover, 
as  the  established  policy  of  the  ancient  feudal  government 
was  to  preserve  and  fix  the  status  of  all  classes  and  con- 
ditions of  men,  it  laid  down  a  multitude  of  vexatious  and 
arbitrary  rules  regulating  every  kind  of  production,  which 
in  turn  prevented  everything  in  the  way  of  independent 


TAXATION  IN  JAPAN.  81 

action  and  progress  on  the  part  of  the  producers.  Thus, 
the  Japanese  farmer  without  government  permission  could 
neither  increase  nor  decrease  the  amount  of  his  cultivated 
land;  nor  could  he  change  from  the  cultivation  of  rice  re- 
quiring a  wet  or  marshy  soil  to  some  other  agricultural 
product  requiring  a  drier  soil.  In  short,  all  the  conditions 
of  land  cultivation  were  so  carefully  prescribed  that  the 
farmer  had  nothing  to  do  but  follow  a  routine  that  devi- 
ated little  from  generation  to  generation.  Under  such  a 
condition  of  things,  especially  under  such  a  system  of  land 
tenure  and  taxation,  population  obviously  could  not,  and 
in  fact  did  not,  increase  either  in  wealth  or  numbers;  and 
taken  in  connection  with  the  circumstance  that  each  of  the 
many  daimios  or  feudal  lords  maintained  great  retinues 
of  wholly  unproductive  retainers,  we  find  an  explanation 
of  the  fact  that  Japan  continued  a  poor  country  with  a 
very  slowly  increasing  population  even  in  times  of  pro- 
found peace.  During  the  century  and  a  quarter  from  1721 
to  1846,  the  increase  is  reported  by  Japanese  authorities  to 
have  not  been  in  excess  of  five  per  cent.* 

After  the  restoration  in  1873  of  the  authority  of  the 
emperor,  and  the  abrogation  of  the  daimio  system  or  lord- 
ship, a  radical  change  was  made  in  Japan,  not  only  in  the 
general  status  of  the  farmer,  but  in  the  conditions  under 


*  According  to  a  paper  read  by  Professor  Droppers  before  the 
Asiatic  Society  in  Tokio,  June,  1894,  this  period  was  a  time  of 
only  measurably  suppressed  anarchy  and  lawlessness.  It  was  two 
hundred  and  fifty  years  of  armed  truce.  It  was  one  large  dance 
to  death.  Famines  were  frequent  and  dreadful.  Having  no  rail- 
roads or  steamships,  and  having,  in  their  eagerness  to  shut  out 
foreigners  and  keep  in  their  own  people,  destroyed  all  sea-going 
ships,  they  had  no  water  transportation  except  by  means  of 
wretched  junks.  Millions  upon  millions  died  of  hunger.  To  this 
day,  around  the  cremation  houses  of  certain  inland  cities  there 
are  acres  of  heaps  of  human  bones  mixed  with  ashes,  the  awful 
witnesses  to  the  might  of  famine,  when  hundreds  of  bodies  were 
burned  daily  to  prevent  pestilence.  Child  murder  and  exposure 
were  in  some  provinces  so  common  that  the  question  which  neigh- 
bours would  ask  of  a  father,  whether  he  intended  to  raise  the 
newborn  baby  or  not,  was  as  proper  as  it  was  usual.  It  is  esti- 
mated by  medical  men  that  fifty  per  cent  of  the  people  died  of 
smallpox.  Syphilis  was  almost  a  national  disease.  Disease,  im- 
morality only  partly  suppressed,  anarchy,  famine,  social  and  eco- 
nomical antagonisms,  cramped  Japan  as  in  bands  of  iron. 


82   THE  THEORY  AND  PRACTICE  OF  TAXATION. 

which  he  cultivated  the  soil  and  paid  his  taxes.  All  the 
previous  iron  rules  imposed  upon  him  were  abolished;  he 
was  given  perfect  liberty  to  buy  and  sell  land  or  adopt  new 
modes  of  cultivation.  The  system  of  payment  in  kind  to 
each  provincial  lord  was  replaced  by  a  national  land  tax 
paid  in  money.  The  value  of  every  piece  of  cultivated  land 
was  appraised  according  to  a  complex  and  somewhat  arbi- 
trary method  of  valuation,  and  on  this  capitalized  value 
three  per  cent  was  imposed,  in  addition  to  a  Government 
tax  of  one  per  cent  for  local  purposes.  In  1876  a  decree 
was  issued  reducing  the  general  tax  to  two  and  a  half  per 
cent,  and  the  local  tax  to  one  half  of  one  per  cent.  At  the 
same  time,  with  a  view  to  supplement  this  reduction  of 
local  taxation  and  increase  the  national  revenues,  taxes  were 
imposed  on  spirits  and  tobacco,  on  sales  (at  varying  rates), 
on  contracts,  receipts,  land  transfers,  petitions  (through 
the  agency  of  stamps),  on  some  professions  and  mechanical 
pursuits,  and  on  the  ownership  and  use  of  ships,  boats, 
and  vehicles.  The  land  taxes,  however,  contribute  the 
largest  amount  of  revenue  to  the  national  treasury,  furnish- 
ing about  seventy  per  cent  of  its  receipts,  exclusive  of  the 
local  land  taxes;  and  in  many  districts  of  Japan  the  total 
amount  yielded  by  the  farmer  to  the  Government,  national 
and  local,  was  estimated  in  1891  at  even  more  than  fifty 
per  cent  of  his  crop.* 

* "  This  statement,  however,  gives  no  indication  of  the  true 
condition  of  the  Japanese  farmer.  In  this  country,  where  the 
Government  performs  so  many  functions  which  in  America  are 
left  to  the  individual,  a  high  rate  of  taxation  is  not  necessarily 
an  indication  of  poverty  or  of  a  low  standard  of  living.  With  a 
sufficiency  of  land  and  a  variety  of  crops,  even  the  Japanese  farmer 
can  live  comfortably,  especially  if  a  good  fraction  of  his  land  is 
dry  field  (luita)  on  which  he  generally  raises  two  crops  a  year. 
Very  few  of  the  farmers  of  Japan,  however,  are  in  this  condition 
of  tolerable  comfort.  The  amount  of  the  cultivated  land  of  the 
empire  is  so  small  (less  than  twelve  per  cent  of  the  whole  area) 
ami  the  population  so  large  (over  forty  millions)  that  the  land 
belonging  to  each  family  is  absurdly  insufficient.  The  average 
holding  is  less  than  two  acres,  subdivided  into  smaller  parcels, 
which  vary  in  size  in  different  provinces,  but  average  nearly  one 
eighth  of  an  acre  each.  Thus,  to  picture  a  typical  Japanese  farm, 
one  must  imagine  a  piece  of  land  less  than  two  acres,  cut  up  into 
about  fourteen  pieces,  or  bits,  each  separated  from  the  other  by 
a  raised  path  of  earth.  Even  then  the  picture  is  incomplete,  since 
the  bits  belonging  to  one  farmer  are  not  necessarily  adjacent  to 


TREATIES  WITH  JAPAN.  83 

Very  curiously,  the  responsibility  for  the  existence  and 
continuance  of  this  extraordinary  system  of  land  taxation 
in  Japan,  which  finds  no  parallel  in  any  other  country,  and 
the  incidence  of  which  constitutes  such  a  burden  on  the 
mass  of  its  population,  has  until  a  very  recent  period  rested 
with  foreign  nations  rather  than  the  Japanese  Govern- 
ment, and  in  this  wise :  When  treaties  were  first  made  by 
foreign  nations  with  Japan,  after  the  opening  of  its  ports 
and  the  abandonment  of  its  old-time  system  of  non-inter- 
course with  the  rest  of  the  world,  it  was  assumed  on  the 
part  of  the  former  that  the  Government  and  people  of 
Japan  were  in  a  semi-barbarous  condition,  and  ought  to 
be  treated  as  such  in  all  political  and  commercial  negotia- 
tions ;  and  that  in  respect  to  trade  and  commerce  the  great- 
est advantage  should  be  taken  of  the  weaker  nation  that 
circumstances  would  permit.  The  leading  nations  of  Eu- 
rope and  the  United  States  accordingly  stipulated,  in  their 
treaties  with  Japan,  that  it  should  not  impose  any  duties 
on  exports  or  imports  in  excess  of  five  per  cent;  and  the 
receipts  from  customs  being  thus  arbitrarily  made  insig- 
nificant, and  those  from  such  other  sources  as  spirits,  to- 
bacco, licenses,  and  the  like  being  normally  inadequate, 
the  Government  of  Japan  has  been  compelled  to  resort  to 
the  old  feudal  system  of  taxation  as  the  only  practical  way 
of  obtaining  revenue  to  defray  its  necessary  expenditures.* 


each  other,  but  frequently  many  a  rood  apart.  Such  a  beggarly 
amount  of  land,  even  under  the  most  perfect  system  of  cultivation, 
can  not  of  course  yield  sufficient  to  bring  up  a  family  according 
to  Western  standards  of  comfort.  The  idea  of  wages,  or  remunera- 
tion for  labour,  scarcely  enters  the  Japanese  farmer's  mind;  he 
is  content  if,  after  paying  his  taxes,  he  can  in  some  rough  fashion 
merely  make  both  ends  meet.  At  any  fair  rate  of  wages,  farming 
is  carried  on  at  a  loss  in  Japan.  The  farmer  seldom  eats  the  rice 
he  grows,  generally  using  barley  or  millet  as  a  cheaper  means  of 
subsistence.  His  expenditures  are  on  an  infinitesimal  scale;  the 
clothes  of  the  family  are  often  heirlooms  handed  down  from  gen- 
eration to  generation;  and  as  for  saving  anything  from  j'ear  to 
year,  the  practice  is  so  little  known  in  this  country  as  hardly  to 
be  considered  a  virtue." — Correspondence  Neic  York  Nation,  1S9J. 

*  Recent  treaties  (1894)  have  in  a  degree  abrogated  the  dis- 
abilities which  foreign  nations  imposed  on  Japan  at  the  time  of 
the  abandonment  of  its  policy  of  non-intercourse  with  the  rest 
of  the  world,  but  a  denial  of  the  right  of  Japan  exclusively  to 
regulate  its  taxes  (duties)  on  imports  is  still  maintained. 


84   THE  THEORY  AND  PRACTICE  OP  TAXATION. 

But,  notwithstanding  this,  the  results  that  have  fol- 
lowed the  fall  of  feudalism  in  Japan  in  1868  are  in  the 
highest  degree  interesting,  and  constitute  an  important 
contribution  to  the  history  of  civilization.  Between  1871 
and  1893  the  population  increased  eight  millions,  railways 
and  steamers  have  annihilated  famine,  old  epidemics  have 
become  rare,  the  severity  of  old  criminal  law  has  been 
greatly  mitigated,  while  liberty  has  encouraged  the  people 
to  a  wonderful  activity  and  progress. 


CHAPTER  III. 

GREECE   AND   EOME. 

Taxation  in  Ancient  Greece. — In  Athens,  according 
to  Boeckh,  the  revenues  of  the  state  were  derived  from 
receipts  from  the  public  domains,  including  mines,  partly 
from  taxes  analogous  to  our  "  customs  "  and  "  excise,"  and 
some  taxes  upon  industry  and  persons  which  only  extended 
to  aliens  and  slaves;  from  fines  and  justice  fees,  from  the 
proceeds  of  confiscated  property,  and  from  tribute  from 
allied  or  subject  states.  All  the  exports  and  imports  of 
Athens,  at  one  period,  were  subject  to  a  small  duty  of  two 
per  cent ;  and  in  addition  to  this,  foreign  ships  lying  in  the 
harbour  paid  a  small  fee,  as  did  also  aliens  for  the  privilege 
of  selling  commodities,  arriving  by  sea,  in  certain  desig- 
nated market  places.  "  A  special  tax  was  also  levied  upon 
the  proprietors  or  occupants  of  houses,  the  doors  or  win- 
dows of  which  opened  outward  on  the  public  footway. 
And,  as  throwing  further  light  on  the  social  system  of  an- 
cient Greece,  we  have  the  statement  on  good  authority  that 
the  Greeks,  having  no  pockets,  used  to  leave  valuable  arti- 
cles in  sealed  packets,  trusting  to  the  laws  which  punished 
the  violation  of  a  seal.  Direct  taxes,"  according  to  Boeckh, 
"  imposed  upon  the  soil,  upon  industry,  or  upon  persons, 
excepting  in  cases  of  emergency,  were  looked  upon  in 
Greece  as  despotic  and  arbitrary;  it  being  considered  as  a 
necessary  element  of  freedom  ihat  the  property  of  a  citi- 
zen, as  well  as  his  occvipation,  should  be  exempt  from  all 
taxation,  except  when  a  free  community  taxed  itself,  which, 
however,  is  obviously  an  essential  part  of  liberty."  Poll 
taxes  were  exacted  by  the  Athenian  state,  but  as  such  taxes 
were  considered  ignominious  and  as  implying  subjugation, 
they  were  only  assessed  upon  slaves  or  subjugated  foreign- 
ers; and  failure  to  pay  was  regarded  in  the  light  of  a 
capital  offence. 

85 


86   THE  THEORY  AND  PRACTICE  OF  TAXATION. 

The  income  of  Athens  frorn  fines  appears  to  have  been 
considerable,  and  to  have  constituted  a  singular  and  perma- 
nent feature  of  the  fiscal  policy  of  the  state.  Its  method 
of  assessment  may  be  best  illustrated  by  examples.  Thus, 
if  duly  authorized  officials  did  not  hold  certain  assemblages, 
according  to  rule,  or  properly  conduct  the  appointed  busi- 
ness, they  had  each  to  pay  a  thousand  drachmas  ($200). 
If  an  orator  conducted  himself  indecorously  in  a  public 
assembly,  he  could  be  fined  fifty  drachmas  (ten  dollars) 
for  each  offence,  which  might  be  raised  to  a  higher  sum  at 
the  pleasure  of  the  people.  A  woman  conducting  herself 
improperly  in  the  streets  paid  a  similar  penalty.  If  a 
woman  went  to  Eleusis  in  a  carriage,  she  subjected  herself 
to  a  fine  of  a  talent  ($1,180).  In  the  case  of  wealthy  or 
notable  persons,  fines  for  omissions  or  commissions  in  re- 
spect to  conduct  were  made  much  greater,  and  so  more  pro- 
ductive of  revenue;  and  there  were  very  few  notable  or 
wealthy  citizens  of  Athens  who  under  the  rule  of  dema- 
gogues, and  through  specious  accusations  of  offences  against 
the  state  or  the  gods,  escaped  the  payment  of  heavy  fines; 
the  experiences  of  Miltiades,  Themistocles,  Aristides,  De- 
mosthenes, Pericles,  Cleon,  and  Timotheus  being  cases  in 
point.*     Every  person  who  failed  to  pay  a  fine  owing  to 

*  It  was  probably  the  contemplation  of  this  state  of  things 
that  led  her  great  philosopher  Aristotle  to  the  conclusion,  ex- 
pressed in  his  essay  on  Politics,  that  "  the  rule  of  an  irresponsible 
majority  can  be  just  as  despotic  as  that  of  a  single  tyrant."  He 
defines  this  extreme  democracy  as  that  "  in  which  the  majority, 
and  not  the  law,  is  supreme  " — in  other  Avords,  "  when  decrees  of 
the  people,  and  not  the  law,  govern."  By  "  law  "  is  meant  a  fixed 
code  of  statutes,  which  can  not  be  changed  or  repealed  by  the 
ordinary  legislative  power.  The  latter  can  pass  only  decrees  in 
conformity  to  the  fixed  code,  which  thus  corresponds  to  our  written 
constitutions.  Such  absolute  power,  he  says,  makes  the  people 
a  monarch,  and  finally  a  despot  refusing  to  be  subject  to  law; 
and  "  such  a  democracy  is  analogous  to  tyranny."  Both  have  the 
same  character,  for  "  both  exercise  a  slaveholder's  rule  over  the 
better  citizens."  In  one  we  have  decrees,  in  the  other  edicts;  in 
one  demagogues  are  in  authority,  in  the  other  flatterers.  When 
a  dispute  arises,  the  cry  always  is,  "  The  people  must  settle  it," 
and  everything  is  determined  by  the  momentary  will  of  the  su- 
preme multitude.  From  this  state  of  things  the  wisdom  of  our 
fathers  has  saved  us,  and  the  Supreme  Court  of  the  United  States, 
as  a  rule,  decides  questions  of  constitutional  law  with  far  more  wis- 
dom and  dignity  than  its  predecessor,  the  popular  court  of  Athens, 


FINES  AND   LITURGIES.  87 

the  state  was  reckoned  as  a  public  debtor,  and  was  subject 
to  imprisonment  and  a  practical  denial  of  citizenship ;  Mil- 
tiades,  the  victor  at  Marathon,  for  example,  having  been 
cast  into  prison  (where  he  afterward  died)  through  an 
inability  to  pay  a  fine  assessed  against  him  of  fifty  talents.* 
Another  curious  feature  of  the  fiscal  policy  of  Athens 
was  an  indirect  augmentation  of  the  public  revenues,  by 
diminishing  the  public  expenditures  through  an  institution 
which  was  essentially  one  of  difi'erential  exaction  (mis- 
called taxation),  and  was  known  as  "  liturgies."  They  con- 
sisted in  the  conferring  upon  ambitious  and  wealthy  citizens 
certain  honorary  public  offices  to  which  nothing  of  salary 
or  compensation  was  attached,  but  which  entailed  large 
expenditures  for  the  entertainment  of  the  people  or  defence 
of  the  country.  The  acceptance  of  these  offices  was  compul- 
sory; parsimony  in  expenditure  on  the  part  of  the  holder 
exposed  him  to  public  censure;  and  the  institution  un- 
doubtedly found  favour  with  the  masses  as  a  method  of 
dividing  the  property  or  consuming  the  incomes  of  the 
wealthy.  The  system  of  liturgies  was  not,  however,  pecul- 
iar or  restricted  to  the  Athenian  state.  It  existed  in  the 
Greek  cities  of  Asia  Minor,  and  also  to  a  certain  extent 
in  Eome,  where  the  persons  accepting  the  office  of  sedile, 
whose  business  it  was  to  take  care  of  public  edifices  and 
superintend  public  festivals,  were  expected  to  appropriate 
large  sums  from  their  private  resources  for  the  convenience 
and  amusement  of  the  people.  The  office  of  sedile  in  Eome, 
which  was  one  of  great  honour,  was  thus  only  made  acces- 
sible to  the  very  wealthy.  But  as  the  office  was,  however, 
in  the  direct  line  of  preferment  to  some  lucrative  office 
in  the  provinces,  the  expenditures  of  its  occupant  were 
probably  regarded  in  the  light  of  an  investment,  from 
which  more  than  complete  remuneration  was  to  be  expected 
in  the  future,  f  The  principle  involved  in  the  liturgies 
would  also  seem  to  find  recognition  and  exemplification 
in  modern  times,  and  under  a  different  civilization,  but  in 
accordance  with  the  same  human  nature;  as,  for  example, 
in  Great  Britain,  which,  by  requiring  members  of  Parlia- 
ment to  serve  gratuitously,  virtually  restricts  membership 

*  Boeckh's  Public  Economy  of  Athens,  vol.  ii,  pp.  105-118. 
t  Boeckh,  vol.  ii,  pp.  199  ^t  seq. 


88       THE  THEORY  AND   PRACTICE  OP  TAXATION. 

in  that  body  to  wealthy  citizens;  and  also  in  the  United 
States,  which,  by  paying  her  judges  and  most  of  her  other 
great  officers  of  state  inconsiderable  and  inadequate  sala- 
ries, practically  reduces  the  cost  of  her  Government,  and 
virtually  makes  merchandise  of  her  honours  by  entailing 
a  part  of  the  proper  expenses  of  such  offices  upon  every 
first-class  incumbent  of  them.* 

The  comparatively  small  expenditures  of  the  Athenian 
state  should  also  be  considered  in  connection  with  their 
revenue  requirements.  Thus,  Mr.  Grote  estimates  the  an- 
nual expenditure  of  Athens,  in  the  time  of  Pericles,  at  one 
thousand  talents,  or  $1,180,000;  and,  according  to  Mr. 
Boeckh,  the  revenues  of  the  city  never  exceeded  two  thou- 
sand talents,  or  $2,360,000.  The  annual  tax  paid  on  the 
property  of  Demosthenes  by  his  guardians  amounted  to 
only  one  fifth  of  one  per  cent  of  its  valuation;  and  as, 
before  the  Peloponnesian  war,  the  receipts  from  the  silver 
mines  owned  by  the  state  were  so  abundant  that  the  sur- 
plus revenue  was  divided  among  the  citizens  of  Athens, 
it  is  evident  that  for  a  time  there  was  no  necessity  for 
taxation. 

Taxation  in  Eome. — Up  to  the  time  of  Servius  Tullius 
taxation  in  Rome  consisted  of  a  capitation  assessment,  arbi- 
trarily fixed,  without  regard  to  the  means  of  the  individ- 
ual.! After  the  termination  of  the  last  Punic  war,  and 
down  to  nearly  the  epoch  of  the  Empire — a  period  of  at 
least  one  hundred  and  twenty-five  years — the  people  of 
Rome  were  exempt  from  all  direct  taxation.  This  was  due 
to  the  circumstance  that  Rome  had  accumulated  great 
wealth,  and  was  in  receipt  of  an  annual  revenue  from  her 
conquered  provinces  fully  adequate  to  defray  all  the  ex- 
penses of  the  government,  including  the  military  establish- 
ment of  the  state.  A  large  revenue  for  a  considerable 
period  was  also  derived  from  the  imperial  silver  mines  in 


*  It  will  not  probably  be  disputed  that  the  talent  and  experi- 
ence which  ought  to  be  prerequisite  to  the  holding  and  proper 
discharge  of  the  duties  of  many  of  the  important  offices  of  the 
Government  of  the  United  States — judges,  cabinet  ministers,  for- 
eign ministers,  consuls,  etc. — will  command  in  private  life  a  much 
higher  compensation  or  salary  than  is  paid  by  the  state. 

t  Ortolan,  History  of  Roman  Jurisprudence,  English  edition, 
p.  257. 


TAXATION  IN  ROME.  89 

Spain.  Cicero,  who  lived  before  the  empire,  in  one  of  his 
epistles  to  Atticus,  laments  the  possibility  of  a  resort  to 
taxation  by  the  state  at  some  time  in  the  future  as  some- 
thing ominous  of  evil. 

One  of  the  first  acts,  however,  of  Augustus,  after  assum- 
ing the  reins  of  government,  was  the  gradual  institution 
of  an  extensive  system  of  taxation.  He  organized  a  land 
tax  for  the  whole  empire;  and  followed  it  up  with  what 
Gibbon  terms  "  an  artful  assessment "  on  the  real  and  per- 
sonal property  of  the  Eoman  citizens,  who,  as  before  shown, 
had  been  long  exempted  from  any  contributions  for  the 
support  of  the  state.  A  tax  of  five  per  cent,  or  one  twen- 
tieth, was  also  imposed  on  all  legacies  and  successions, 
which  did  not  apply  to  objects  inherited  of  less  than  a 
specified  value  ("probably,"  says  Gibbon,  "of  fifty  or  a 
hundred  pieces  of  gold  " )  ;  nor  was  it  exacted  from  the 
nearest  of  kin  on  the  fathers  side.* 

This  tax,  which  appears  to  have  been  most  productive, 
was  one  of  the  most  permanent  taxes  of  the  empire,  and  its 
amount  was  increased  by  the  successors  of  Augustus. 

Gibbon  seems  to  have  been  in  doubt  as  to  the  motive 
which  prompted  Augustus  to  incorporate  these  new  fea- 
tures of  taxation  in  the  Eoman  governmental  policy,  and 
suggests  a  desire  to  relieve  the  provinces  from  their  burden 
of  tribute,  or  to  effect  the  impoverishment  of  the  senate 
or  the  "equestrian"  (knights)  order.  A  more  modern 
and  probably  a  more  correct  view  is,  that  Augustus  recog- 
nised that,  as  Eome  possessed  all  the  known  world  that  she 
considered  worth  possessing,  the  profitable  results  of  fur- 
ther conquests,  and  the  drain  of  accumulated  wealth  from 
subjugated  nations,  had  practically  come  to  an  end ;  that 
her  army  henceforth  existed  mainly  for  maintaining  the 
integrity  of  the  empire,  or  for  defence ;  and  that  for  its 
support,  in  default  of  opportunities  to  plunder,  an  exten- 
sive and  rigorous  system  of  taxation  had  become  necessary. 

* "  Such  a  tax  was  most  happily  suited  to  the  situation  of 
the  Romans,  who  could  frame  their  arbitrary  wills  according  to 
the  dictates  of  reason  or  caprice,  without  any  restraint  from  the 
modern  fetters  of  entails  and  settlements.  From  various  causes, 
the  partiality  of  parental  affection  also  often  lost  its  influence 
over  the  dissolute  nobles  of  the  empire;  and  if  the  father  be- 
queathed to  his  son  a  fourth  part  of  his  estate,  he  removed  all 
grounds  of  legal  complaint." — Gibbon,  vol.  i,  p.  192. 
7 


90   THE  THEORY  AND  PRACTICE  OP  TAXATION. 

Under  the  system  of  taxation  established  by  Augustus 
and  extended  by  his  successors,  most  of  the  taxes  known  to 
modern  times  were  anticipated  by  the  Eomans.  Apart 
from  the  taxes  on  hind,  they  had  export  and  import  taxes ; 
tolls  for  passage  over  bridges;  a  tax  upon  salt;  a  tax  in 
kind  upon  corn  (wheat),  barley,  wine,  oil,  meat,  and  wood ; 
a  tax  upon  the  value  of  manumitted  slaves ;  on  sales ;  and 
a  capitation  or  poll  tax.  Of  other  notable  and  peculiar 
Eoman  taxes  was  one  on  the  wages  of  prostitutes ;  and  apart 
from  his  Avars  with  the  Jews  and  the  building  of  the  Colos- 
seum, the  Eoman  Emperor  Vespasian  is  best  known  in  his- 
tory as  the  originator  of  a  tax  on  urinals. 

Excepting  possibly  the  land  tax,  there  does  not  appear 
to  have  been  any  general  and  uniform  system  of  taxation 
for  the  whole  empire.  The  taxes  on  imports  and  exports 
were  not  uniform,  and  there  were  separate  customs  dis- 
tricts, each  with  a  tariff  of  its  own,  and  some  with  special 
immunities.  Under  the  reign  of  Augustus  and  his  suc- 
cessors, duties  varying  from  an  eighth  to  the  fortieth  part 
of  the  value  of  the  commodity  were  imposed  at  Eome  on 
every  kind  of  merchandise,  "  which  through  a  thousand 
channels  flowed  to  the  great  centre  of  opulence  and  luxury ; 
and  in  whatsoever  manner  the  law  was  expressed,  it  was  the 
Eoman  purchaser  and  not  the  provincial  merchant  that 
paid  the  tax."  * 

A  general  tax  (characterized  by  Gibbon  as  an  excise), 
seldom  exceeding  one  per  cent,  was  also  exacted  at 
Eome  on  whatever  "was  sold  in  the  market  place,  or  by 
public  auction,  from  the  most  considerable  purchase  of 
land  and  houses  to  those  minute  objects  which  can  only 
derive  a  value  from  their  infinite  multitude  and  daily  con- 
sumption." As  exports  were  subject  to  Eoman  taxation 
as  well  as  imports,  and  as  the  average  rates  imposed  in 
both  cases  were  probably  low,  these  forms  of  taxation  ap- 
pear to  have  been  in  the  nature  of  a  payment  for  the  privi- 
lege of  conducting  commerce;  imposed  for  the  purpose  of 
revenue  only,  and  without  the  slightest  reference  to  any 
contingent  influences  on  trade  or  industry.  In  fact,  the 
idea  of  promoting  (protecting)  industry  through  taxes  on 

*  Gibbon,  vol.  i,  p.  190,  who  in  turn  cites  Tacitus,  Annals,  vol. 
xiii,  p.  31,  as  authority. 


ROMAN  TAX-GATHERERS.  91 

exchanges  appears  to  have  found  little  place  in  Roman  or 
any  other  ancient  economic  history  or  experience. 

In  accordance  with  a  practice  on  the  part  of  the  ancient 
Eomans  of  deifying  abstractions — as  war,  love,  navigation, 
thievery,  and  the  like — we  find  mention  of  the  Genius  of 
the  Custom  House,  or  of  Indirect  Taxes  {genius  portorii 
puhlici),  a  divinity  that  seems  to  have  survived  to  our  own 
times;  inasmuch  as  many  of  the  curious  phenomena  that 
have  occurred  in  connection  with  modern  efforts  to  prevent 
free  exchanges  through  the  agencies  of  customs  taxation, 
seem  only  capable  of  explanation  on  the  assumption  that 
some  occult  power  has  been  more  potential  in  shaping  eco- 
nomic events  in  this  department  of  government  than  any 
proper  exercise  of  man's  reasoning  faculties;  and  that  it 
is  the  part  of  wisdom  that  large  sacrifices  should  be  made 
by  the  people  in  order  to  propitiate  this  deity. 

Throughout  the  whole  course  of  their  history  the  prin- 
cipal taxes  levied  by  the  Romans  appear  to  have  been  col- 
lected through  the  instrumentality  of  a  class  of  officials 
known  as  "  publicans,"  who  paid  the  government  for  the 
privilege  of  so  doing;  and  who,  intrusted  with  extraordi- 
nary powers,  were  allowed,  by  way  of  compensation  for 
their  services,  to  collect  and  retain  as  much  of  additional 
revenue  as  they  could  force  or  extort  from  the  taxpayers 
for  their  individual  and  private  benefit.  Such  an  adminis- 
tration of  the  publicans  necessarily  involved  and  required 
the  employment  of  a  large  number  of  subcontractors  and 
deputies,  who,  stationed  at  seaports,  on  public  highways, 
at  the  gates  of  cities,  and  the  market  places,  examined  all 
goods  exported,  imported,  or  offered  for  sale,  estimated 
their  value,  and  collected  the  taxes  to  which  they  were 
legally  liable,  and  as  much  more  as  they  could  extort  with 
impunity,  for  the  benefit  of  their  masters  or  themselves — 
which  last,  in  disorderly  times  and  under  the  bad  emperors, 
had  a  very  wide  latitude.  This  wretched  system  of  "  farm- 
ing "  or  discounting  the  revenues  of  the  state,  which  ap- 
pears to  have  been  a  permanent  feature  of  the  government 
of  Rome  at  all  periods — under  its  kings,  under  the  republic, 
and  under  the  empire — has,  moreover,  a  feature  of  general 
interest,  as  it  clearly  illustrates  the  exceeding  limitation 
and  narrowness  of  the  general  Roman  policy  in  the  sphere 
of  civil  administration. 


92   THE  THEORY  AND  PRACTICE  OF  TAXATION. 

Another  fact  pertinent  to  the  general  philosophy  of 
taxation,  which  the  historical  study  of  Eoman  polity  has 
developed,  is  also  especially  worthy  of  notice  in  this  con- 
nection. As  has  been  previously  stated,  the  Romans,  for 
a  period  of  at  least  one  hundred  and  twenty-five  years 
before  the  establishment  of  the  empire  under  Ctesar,  were 
enabled,  through  the  great  spoils  of  war  obtained  from 
subjugated  nations,  to  relieve  themselves  from  taxation 
for  the  support  of  their  government ;  and,  in  so  doing,  it 
appears  that  they  first  threw  off  their  direct  taxes,  and  at 
a  later  period  those  taxes  that  were  indirect.  But  when 
under  Caesar  it  became  necessary  to  reimpose  taxes,  they 
established  them  in  a  reverse  order — that  is,  the  indirect 
taxes  were  renewed  first  and  in  preference  to  those  which 
were  direct;  thus  recognising  and  affirming  in  practice  the 
idea  that  characterizes  the  fiscal  policy  of  most  modern 
governments — namely,  that  it  is  expedient  to  conceal  as 
far  as  possible  the  burden  of  taxes  from  the  people  who  are 
to  pay  them. 

The  gross  amount  of  annual  revenue  which  the  empire 
of  Rome  collected  in  its  best  day  is  estimated  by  Gibbon 
to  have  been  about  twenty  million  pounds  sterling  ($100,- 
000,000)  ;  later  authorities  place  it  at  a  much  higher  figure, 
or  $200,000,000.  In  defaiilt,  however,  of  exact  informa- 
tion as  to  the  purchasing  power  of  money  at  the  time,  it  is 
obvious  that  neither  of  these  estimates  can  give  us  any 
true  idea  of  the  real  amount  of  the  Roman  revenue;  but, 
taking  the  probable  price  of  wheat  in  Rome  at  the  close 
of  the  republic  as  an  indication  of  the  price  of  other  com- 
modities, the  purchasing  power  of  Gibbon's  twenty  million 
pounds  sterling  ($100,000,000)  must  have  represented  a 
much  greater  sum,  or  at  least  $150,000,000.  If  the  largest 
of  these  estimates  of  the  revenue  of  imperial  Rome  should 
seem  inadequate  for  the  support  of  a  government  that  ex- 
tended over  the  greater  part  of  the  then  known  surface 
of  the  earth,  that  included  a  population  of  at  least  150,- 
000,000,  and  maintained  a  military  and  naval  establish- 
ment of  450,000  men,  it  should  be  remembered  that,  apart 
from  the  greater  increased  purchasing  power  of  money 
that  now  prevails,  the  expenditure  by  the  state  for  the  sup- 
port of  its  military  forces  was  comparatively  small  ('^the 
ratio  of  military  draft  upon  society  before  the  inception 


PROVINCIAL  TAXATION  OF   ROME.  93 

of  Eome's  decadence  being  but  little  more  than  one  third  as 
great  as  that  of  the  seven  principal  states  of  present  Eu- 
rope "  *)  ;  that  the  present  complexity  and  magnitude  of 
expenditure  in  the  form  of  taxes  did  not  exist;  and  that 
a  Koman  national  debt,  with  its  burden  of  constantly  accru- 
ing interest — the  one  thing  most  grievous  to  modern  states 
— was  entirely  unknown. 

The  taxes,  or  rather  exactions,  on  the  people  of  the  con- 
quered provinces  of  Rome  were  always  more  numerous,  dis- 
criminating, and  onerous  than  those  levied  upon  the  popu- 
lation of  the  imperial  city  and  its  adjoining  districts ;  and 
from  the  time  of  the  Emperor  Diocletian  they  became 
more  and  more  destructive  of  industry,  and  fell  with  special 
weight  upon  agriculture.  According  to  Sir  James  Stephen, 
the  land  tax  in  Gaul  rose  to  "  the  almost  incredible  amount 
of  one  third  of  the  net  produce  of  the  land  "  ;  but  what  is 
more  singular  and  incredible,  the  present  tax  on  the  peasant 
agriculturist  of  Italy  is,  in  some  cases,  equivalent  to  the 
value  of  an  even  larger  share  of  his  product. 

The  provincial  taxes  which  gave  rise,  however,  to  the 
greatest  discontent  were  the  poll  tax  and  a  tax  upon 
funerals.  These  were  easy  to  collect,  and  consequently  in 
favour  with  the  Eoman  tax-gatherers;  but  being  levied  at 
fixed  and  undiscriminating  rates,  pressed  with  great  and 
unequal  severity  upon  the  poor.  The  last-mentioned  tax 
— i.  e.,  upon  funerals,  which  required  payment  before  the 
burial  of  the  dead — was  said  to  have  formed  one  of  the 
principal  causes  of  the  revolt  of  the  Iceni  (Britons),  under 
their  famous  warrior.  Queen  Boadicea.  The  decree  men- 
tioned in  St.  Luke's  Gospel,  of  Ca?sar  Augustus,  that  all 
the  world  should  be  taxed,  and  in  pursuance  of  which 
"  every  one  went  into  his  own  city,"  unquestionably  re- 
ferred to  a  poll-tax  assessment,  and  to  its  required  pay- 
ment in  person  by  every  adult  at  the  Eoman  tax-collector's 
office  nearest  to  an  established  centre  of  Eoman  authority,  f 

In  the  province  of  Gaul  the  annual  tribute  exacted  from 
every  head  under  the  reign  of  Constantine  was  reported 
to  have  been  twenty-five  pieces  of  gold.    But  the  possibility 

*  Baker,    The    Grandeur   and    Decadence    of    the    Romans.      D. 
Appleton  &  Co.,  1894. 
t  Luke,  ii,  1. 


94   THE  THEORY  AND  PRACTICE  OF  TAXATION. 

of  the  payment  of  such  a  high  capitation  tax  has  been  ex- 
plained by  the  circumstance  that  in  all  the  provinces  of  the 
Eoman  world  the  majority  of  the  people  were  slaves,  or 
peasants  whose  condition  was  little  different  from  slavery; 
and  that  the  rolls  of  tribute  embraced  only  the  names  of 
citizens  who  possessed  the  means  of  an  honourable  or  at 
least  of  a  decent  subsistence. 

The  whole  record  of  Roman  experience  in  respect  to 
revenue  collection  or  taxation  before  the  decadence  of  the 
empire,  alike  in  the  city  of  Eome  and  in  her  provinces,  is, 
however,  of  no  value,  save  from  an  historical  point  of  view. 
It  does  not  appear,  as  before  noted,  to  have  been  based  upon 
any  well-devised  and  harmonious  fiscal  system,  or  to  have 
had  any  influence  whatever  in  originating  or  developing 
one;  for,  unlike  other  Roman  customs  and  institutions,  it 
everywhere  fell  into  disuse  when  the  authority  of  Rome 
was  withdrawn.  In  one  feature  alone  was  Rome  consistent 
in  her  views  and  harmonious  in  her  practice  in  respect  to 
taxation :  she  always  levied  taxes  for  the  purpose  of  get- 
ting money  into  the  public  treasury  and  for  no  ulterior 
reason.  The  nearest  approach  on  the  part  of  the  Romans 
to  a  recognition  of  the  policy  of  stimulating  a  branch  of 
industry  through  the  instrumentality  of  bounties  or  sub- 
sidies seems  to  have  occurred  in  connection  with  the  distri- 
bution of  wheat  gratuitously,  or  at  artificially  low  prices, 
among  the  poor  and  idle  masses  of  the  imperial  city ;  which 
practice,  originally  adopted  under  the  republic,  with  a  view 
of  obviating  popular  discontent,  and  continued,  with  addi- 
tions of  oil  and  meat  under  the  empire,  finally  became  a 
cause  of  great  anxiety  to  the  emperors  lest  anything  should 
interfere  with  the  movement  of  grain,  which  was  mainly 
by  sea  from  Africa  and  Sicily.  To  insure  regularity  and 
eflficient  service,  the  state  at  first  farmed  out  the  right  to 
transport  the  crops  to  certain  wealthy  individuals ;  and  this 
inducement  to  enterprise  proving  insufficient,  the  Emperor 
Claudius  gave  a  bounty  for  each  successful  trip  of  the  grain 
fleet.  The  construction  of  ships  was  also  encouraged  by 
subsidies,  and  in  this  way  there  grew  up  a  class  of  wealthy 
shipowners,  whose  profits  and  incentive  to  business  were 
obtained  from  the  state,  and  who  by  organization  into  an 
association  (analogous  to  the  modern  trust)  under  the 
name  of  "  Naviculari,"  with  branches  in  every  city  or  town 


ROMAN  CONTEMPT  FOR  LABOR.        95 

in  the  provinces,  and  with  wealtliy  and  influential  sena- 
tors among  its  stockholders  or  patrons,  attained  to  great 
prominence  and  influence  in  the  third  and  fourth  centuries. 

Taxation,  in  at  least  one  notable  instance,  was  also  em- 
ployed by  the  Komans  as  an  instrumentality  for  the  correc- 
tion of  a  social  evil — namely,  a  disinclination  on  the  part 
of  wealthy  citizens,  in  the  latter  days  of  the  republic  and 
throughout  the  whole  period  of  the  empire,  to  contract  mar- 
riages, with  a  view  of  avoiding  the  cares  and  burdens  of  a 
family.  To  counteract  this  tendency,  a  tax  {"  ces  uxo- 
rium")  was  imposed  on  bachelors,  with  a  limitation  {"lex 
Julia  et  Papia  Poppcea")  on  the  transmission  of  property 
by  will  or  gift  by  the  unmarried  and  the  childless.* 

The  statesmen  and  administrators  of  Eome  seem  never 
to  have  given  a  thought  to  the  desirability  of  encouraging 
industry,  trade,  or  commerce  among  their  own  people,  much 
less  among  the  people  they  had  subjugated.  There  was, 
throughout  all  their  literature  and  laws,  the  contempt 
which  brigands  and  barbarians  entertain  for  honest  in- 
dustry at  least  when  that  industry  is  not  agricultural.  To 
create  wealth  appeared  to  them  sordid ;  to  take  it  was  ad- 
mirable, or,  as  M.  Blanqui  has  put  it,  the  economic  policy 
of  the  Roman  state  may  be  expressed  in  the  following  single 
sentence,  "  Les  romains  voulaient  avant  tout  consoinmer 
sans  produire.^'  f 

*  In  the  seventeenth  and  eip;hteenth  centuries  there  was  well- 
ni^h  universal  legislation  of  this  kind,  the  most  thoroughgoing 
specimens  being  a  Spanish  edict  of  1623  and  one  of  Louis  XIV  in 
1666,  which  not  only  granted  exemption  from  taxation,  but  posi- 
tive subsidies  in  cash,  as  an  inducement  to  early  marriages.  That 
the  idea  involved  in  such  legislation  has  also  found  favour  at  the 
present  time  is  shown  by  the  fact  that  Professor  Richet,  a  Ger- 
man economist  of  repute,  has  recently  proposed  that  in  all  systems 
of  taxation  the  fathers  of  large  families  be  favoured,  and  that 
corresponding  burdens  be  laid  on  those  who  contumaciously  refrain 
from  marrying:  ignoring  the  fact  that  old  Rome  adopted  and 
carried  out  this  policy  by  measures  much  more  drastic  than  the 
spirit  of  the  present  times  would  tolerate,  and  that  the  result  is 
generally  believed  to  have  been  a  failure.  It  is  also  worthy  of 
note  that  at  the  present  time,  in  the  Canadian  Province  of  Quebec, 
the  fathers  of  the  largest  families  receive  bounties  of  public  lands; 
the  motive  of  which  policy  is  unquestionably  to  bring  the  French 
Canadian  element  into  the  control  of  the  Dominion  Government. 

t  See  Blanqui,  Histoire  de  I'Economie  Politique  en  Europe. 
American  translation  by  Emily  J.  Leonard.     New  York,  1880. 


96   THE  THEORY  AND  PRACTICE  OF  TAXATION. 

The  genius  of  the  Eoman  government  was  military,  not 
commercial.  The  Romans  prohibited  commerce  to  persons 
of  rank  and  fortune;  and  no  senator  was  allowed  to  own 
a  vessel  larger  than  a  boat  sufficient  to  carry  his  own  food 
(grain)  and  fruit.  They  encouraged  corn  merchants  to 
import  provisions  from  Sicily,  Africa,  and  Spain,  because 
the  cultivators  of  the  soil  of  Italy,  mainly  slaves,  did  not 
produce  a  sufficient  supply  of  food  for  the  city  of  Eome. 
They  seem,  moreover,  never  to  have  had  any  conception 
of  the  impolicy  of  levying  taxes  in  such  a  way  as  to  dry 
up  the  channels  of  trade  and  enterprise;  or  of  the  fact, 
abundantly  substantiated  by  all  experience,  that  when  gov- 
ernment takes  from  its  people  more  than  a  fair  share  of 
the  savings  of  capital  and  labour,  then  accumulation  will 
cease  and  capital  be  destroyed ;  and  against  social  disorders 
thus  engendered  Rome  was  powerless.  That  the  seeds  of 
decay  were  thus  planted  in  her  governmental  system,  and 
that  the  fall  of  her  empire  was  hence  only  a  question  of 
time  and  inevitable,  is  a  point  that  historians  seem  very 
generally  to  have  overlooked. 

During  the  years  of  the  later  empire,  although  its  re- 
sources and  population  had  greatly  decreased,  its  expendi- 
tures enormously  increased ;  and  the  sequence  of  this  was 
a  system  of  grinding  exactions,  to  which,  more  than  any 
other  one  immediate  cause,  the  utter  decay  and  final  com- 
plete downfall  of  the  empire  may  be  attributed.  During 
the  period  intervening  between  the  reign  of  Marcus  Au- 
relius  and  Diocletian  it  has  been  estimated  that  a  majority 
of  the  population  of  the  empire,  from  Persia  to  Gaul,  had 
died  of  the  plague;  and  what  the  plague  had  been  to  the 
population,  the  "  fiscus  "  or  financial  policy  of  the  govern- 
ment was  to  industry.  Under  Constantius,  a.  d.  337, 
taxes  were  imposed  on  all  trades  and  industries,  and  such 
was  the  comprehension  and  severity  of  the  law.  Gibbon 
tells  us,  that  "the  honourable  merchant,  the  usurer  who 
derived  from  the  interest  of  money  a  silent  and  igno- 
minious profit,  the  ingenious  manufacturer,  the  diligent 
mechanic,  and  even  the  obscure  retailer  of  a  sequestered 
village,  and  the  public  prostitutes,"  were  all  alike  obliged 
to  admit  the  officers  of  the  revenue  to  a  participation  of 
their  gains.  Such,  moreover,  was  the  imperfect  state  of 
agriculture  and  of  manufacturing  processes  that  the  net 


SEVERITY  OF  ASSESSMENTS.  9Y 

product  of  the  individual  was  necessarily  very  small — so 
much  so  that  it  has  been  estimated  that  the  labour  of  several 
individuals  was  required  to  supply  even  the  necessary  food 
of  one  inactive  person.  But  as  the  people  became  exhausted, 
the  demands  of  the  government,  contingent  on  the  main- 
tenance of  an  extravagant  court  and  a  large  standing  army 
of  soldiers  and  officials,  became  greater,  the  severity  in  the 
methods  of  exaction  increased,  and  in  no  two  provinces  was 
the  authority  of  the  government  (sovereign)  exercised  in 
the  same  manner.*  With  malignant  ingenuity,  and  with 
a  view  of  perfecting  the  control  of  the  state  over  the  in- 
dividual, and  doubtless  more  especially  for  facilitating  the 
operation  of  the  officials  charged  with  the  duty  of  collect- 
ing taxes,  every  man's  position  was  fixed  for  him  by  the 
conditions  of  his  birth.  The  son  of  a  cultivator  of  the  soil 
was  chained,  as  it  were,  to  the  lands  tilled  by  his  father. 
The  workmen  in  all  other  departments  of  industry  were 
bound  to  their  position  for  life,  and  when  they  died  their 
places  were  taken  by  their  sons.  "  If  any  one  of  them 
deserted  his  work,  he  was  sought  out,  even  to  the  remotest 
provinces,  and  ruthlessly  dragged  back  to  his  post."  f  If 
he  failed  to  produce  a  prescribed  result,  the  state  inter- 
vened and  forced  its  accomplishment.  In  making  assess- 
ments for  taxation,  visible  tangible  property  was  enrolled 
with  great  minuteness  by  officers  who  corresponded  to  our 
modern  assessors.  The  lands  were  measured  by  surveyors; 
their  nature — whether  arable  or  pasture,  vineyards  or 
woods — was  distinctly  reported ;  and  an  estimate  was  made 
of  their  value  from  their  average  produce  for  five  years. 
Every  new  purchaser  of  land  contracted  all  the  obligations 
of  former  proprietors.  Slaves  and  cattle  were  counted 
separately,  and  carefully  reported  for  assessment;  and  by 
the  Theodosian  Code,  which  for  the  time  was  an  almost 
universal  law,  death  and  confiscation  of  estate  was  the 


*  Alfred  Rambaud,  L'Empire  Grec  au  Dixi&me  Sieele.  Paris, 
1870. 

t  By  a  law  of  the  Emperor  Theodosius,  in  438  a.  d.,  it  was  pro- 
vided that  the  fahricenses  (meaning  thereby  the  workmen  engaged 
in  the  fabrication  of  arms)  "  shall  be  so  closely  bound  to  their 
appropriate  duties  that,  worn  out  at  last  by  their  toil,  they  shall 
die  in  the  profession  to  which  they  were  born — both  they  and  their 
children  after  them." — Codex  Theod.,  ii,  9,  4- 


98       THE  THEORY  AND  PRACTICE  OF  TAXATION. 

punishment  to  which  every  farming  proprietor  was  liable 
who  should  attempt  to  evade  taxation. 

In  respect  to  the  assessment  and  collection  of  taxes  on 
personal  property,  the  accounts  that  have  come  down  to  us 
are  most  interesting,  and  ought  to  be  full  of  instruction 
to  legislators  of  the  present  day  who  believe  in  pattern- 
ing tax  administration  after  old  and  vicious  experiences, 
so  far  as  the  changed  conditions  and  ideas  of  civilization 
in  the  nineteenth  century  will  admit.  The  proprietor  of 
such  property  was,  in  the  first  instance,  questioned  under 
oath;  and  every  attempt  to  prevaricate  or  elude  the  inten- 
tions of  the  legislator  was  punishable  as  a  capital  crime, 
and  was  held  to  include  the  double  guilt  of  treason  and 
sacrilege.  If  the  results  of  personal  interrogation  under 
oath  were  not  satisfactory  to  the  tax  officials,  they  were 
empowered  to  administer  torture;  and  when  personal 
stoicism  or  absolute  incapacity  failed  to  effect  the  desired 
results,  resort  was  had  to  other,  most  abhorrent,  and  un- 
natural methods  for  procuring  the  sum  at  which  their 
property  was  assessed — "  the  faithful  slave  being  tortured 
for  evidence  against  his  master,  the  wife  to  depose  against 
her  husband,  and  the  son  against  his  sire.  Neither  age 
nor  sickness  exempted  from  liability  and  personal  inquisi- 
tion. In  taking  ages,  they  added  to  the  years  of  children 
and  subtracted  from  those  of  the  elderly.  When  the  num- 
ber of  cattle  fell  off  and  the  people  died,  the  survivors 
were  obliged  to  pay  the  assessments  on  the  dead."  Zosi- 
mus,  a  historian  who  wrote  in  the  early  part  of  the  fifth 
century,  says  that  the  approach  of  the  fatal  period  when 
the  general  tax  upon  industry  was  to  be  collected  "  was  an- 
nounced by  the  tears  and  terrors  of  the  citizens." 

That  the  result,  so  far  as  the  execution  of  the  law  was 
concerned,  was  a  success,  can  not  be  doubted ;  nor  that  by 
the  methods  employed  large  amounts  of  revenue  were  col- 
lected that  otherwise  could  not  have  been  obtained.  But 
what  were  the  final  results?  First,  a  demonstration  of  an 
economic  truth,  which  in  sul)sequent  years  has  over  and 
over  again  been  repeated,  that  the  productiveness  of  a  tax 
is  not  its  first  consideration;  and  that  a  blight  contingent 
on  the  method  of  assessing  and  collecting  a  tax  may  ruin 
a  harvest  which  it  can  not  gather.  Under  the  state  of 
things,  as  described,  that  prevailed  under  the  latter  days 


DESTRUCTIVE  TAXATION.  99 

of  the  Eoman  Empire,  the  agriculture  of  its  provinces  was 
gradually  ruined.  Long  before  the  footsteps  of  the  bar- 
barians had  been  seen  in  Italy,  a  large  part  of  what  had 
been  its  most  fertile  portion  and  the  seat  of  "  the  delicious 
retirement  of  the  citizens  of  Kome,"  had  become  unculti- 
vated and  a  desert.  "  The  desire  and  possibility  of  ac- 
cumulation languished,  and  men  produced  only  what  would 
suffice  for  their  immediate  needs;  for  the  government  laid 
in  wait  for  all  savings.  Capital  vanished,  the  souls  of  men 
were  palsied ;  population  fled  from  what  was  called  civiliza- 
tion, and  sought  concealment  and  relief  in  barbarism  and 
with  barbarians.  Men  cried  for  social  death,  and  invited 
the  coming  of  savages ;  and  in  the  form  of  Goths  and  Van- 
dals, Huns  and  Heruli,  Franks  and  Lombards,  they  came, 
and  the  empire  of  Eome  and  its  degraded  civilization  went 
down  in  almost  universal  turmoil,  bloodshed,  robbery,  and 
woe."  There  is  also  good  reason  for  believing  that  the 
Turks  were  greatly  indebted  for  their  success  in  overthrow- 
ing the  subsequent  Byzantine  or  Greek  Empire  to  their 
simple  methods  and  policy  in  respect  to  taxation;  and  that 
the  subjects  of  the  empire  were  glad  to  change  their  mas- 
ters, because  instead  of  multiplied,  intricate,  and  vexatious 
taxes,  the  legacy  of  old  Rome,  they  found  themselves  sub- 
ject to  a  simple  tribute,  easily  collected  and  easily  paid.* 

*  The  most  available  source  of  information  on  this  subject  is 
the  historian  Gibbon  (Decline  and  Fall  of  the  Roman  Empire, 
edition  with  notes  by  Milman,  Giiizot,  and  Smith ;  New  York, 
Harper's),  who  in  turn  specially  cites  as  the  authority  for  his 
statements  the  two  collections  of  ancient  laws  designated  by  the 
names  of  the  two  Byzantine  emperors  iinder  whom  they  were 
made,  as  the  Codex  Theodosianus  and  Codex  Justinianus,  and  the 
writings  of  Zosimus,  a  Greek  historian,  who  lived  in  the  early 
part  of  the  fifth  century  A.  D.,  and  whose  history  of  the  Roman 
Empire  is  still  extant.  "  For  an  exceedingly  graphic  account  of 
Roman  experiences  in  attempting  to  tax  personal  property  (from 
which  quotations  have  here  been  made)  see  Roman  Imperialism, 
in  Lectures  and  Essays,  by  J.  R.  Seeley,  London,  1870. 


CHAPTER  IV. 

TAXATION    IN   THE   MIDDLE    AGES. 

With  the  termination  of  the  Roman  Empire  of  the 
West,  which  is  regarded  as  having  taken  place  a.  d.  476, 
when  Odoacer,  chief  of  the  Germanic  tribe  Heruli,  cap- 
tured the  city  and  assumed  the  title  of  King  of  Italy,  a 
new  and  great  element  was  introduced  into  European  life, 
through  the  intermingling  of  the  northern  barbarians  with 
the  civilized,  Christianized,  and  degraded  Romans  of  the 
south.  The  following  period,  for  at  least  five  hundred 
years,  was  characterized,  to  an  extent  never  before  sur- 
passed in  the  world's  history,  by  bloodshed,  license,  licen- 
tiousness, turmoil,  robbery,  and  woe.  Franks,  Burgun- 
dians,  Visigoths,  Saxons,  Slavs,  Huns,  Danes,  and  Nor- 
mans crowded  upon  and  warred  with  each  other.  From 
such  a  period,  when  neither  the  agriculturist  nor  the  ar- 
tificer could  control  to  any  great  extent  the  fruits  of  his 
labour,  and  when  the  merchant  "  stole  along  the  hedges, 
shrank  from  the  eye  of  the  passer,  and  stepped  into  rivers 
cautiously,  seeking  a  ford,  lest  the  man  at  the  bridge 
should  rob  him,"  but  little  in  the  way  of  economic  or  fiscal 
principle  could  be  deduced.  In  short,  a  new  society,  the 
foundation  and  precursor  of  what  now  exists,  was  in  the 
process  of  evolution;  but  in  order  that  evolution  might 
commence,  it  would  seem  to  have  been  necessary  that  all 
the  elements  of  the  old  should  be  completely  dissolved,  in 
order  that  its  atoms  might  move  freely — a  condition  like 
that  to  which  the  chemist  is  compelled  to  bring  earthy  min- 
eral substances  in  order  to  effect  their  purification  and  crys- 
tallization. 

The  period  when  the  molecules  of  society  seem  to  have 
begun  to  combine  anew,  is  generally  assigned  by  historians 
to  the  eleventh  century,  when  feudalism  had  become  sys- 
tematized into  something  analogous  to  general  government, 
100 


GOD'S  TRUCE.  101 

and  the  power  of  the  Church  was  especially  manifesting 
itself;  and  was  recognised  to  such  an  extent  that  it  was 
able  to  establish  throughout  nearly  all  Europe  a  period 
known  as  "  God's  Truce,"  when  warfare,  plunder,  and 
bloodshed  were  forbidden  from  sunset  on  Wednesday  to 
sunrise  on  Monday ;  and  "  during  the  Christmas  holy  days 
and  Lent  no  new  defences  were  to  be  erected,  nor  old  ones 
repaired.  But  this  was  not  all.  The  provisions  made  for 
the  protection  of  the  labourer  and  for  the  produce  of  labour 
were  far  more  characteristic  of  the  dawning  of  a  new  era. 
Peasants  in  hostile  territories  were  not  to  be  injured  or 
confined ;  the  tools  of  agriculture,  the  hay  and  the  grain 
stacks  and  the  cattle,  were  all  taken  under  the  protection 
of  the  Church;  and  if  seized,  it  must  be  for  use  and  not 
for  destruction.  He  that  violated  this  truce  was  placed 
under  censure  of  ecclesiastical  power."  From  this  period, 
therefore,  it  is  only  practicable  to  take  up  anew  the  thread 
of  history,  and  attempt  to  resume  the  relation  of  some  of 
the  most  instructive  incidents  that  have  since  character- 
ized the  attempts  of  governments  to  defray  their  expendi- 
tures by  levies  upon  the  persons  and  property  of  their  sub- 
jects or  citizens.  Before,  however,  so  doing,  the  following 
historical  facts  may  properly  find  a  place. 

Hovi^  THE  Druids  collected  Revenue. — An  annual 
payment  in  the  nature  of  a  tax  was  exacted  by  the  ancient 
Druids  from  every  family  for  the  benefit  of  the  priests 
of  the  temple  in  the  district  in  which  the  family  lived. 
The  families  were  obliged,  under  penalty  of  an  ecclesiastical 
curse,  to  extinguish  their  fires  on  the  last  evening  of  Octo- 
ber, and  attend  at  the  temple  with  a  prescribed  annual 
payment.  This  being  made,  they  were  entitled  to  receive, 
on  the  first  day  of  November,  some  of  the  sacred  fire  from 
the  altar,  to  rekindle  the  fires  of  their  houses ;  and  their 
neighbours  were  also  forbidden,  under  a  similar  penalty, 
in  any  way  to  assist  them.  The  result  was,  that  delinquent 
taxpayers  found  them.selves  not  only  interdicted  from  the 
society  of  their  fellow-men  and  from  justice,  the  usual 
sequence  of  ecclesiastical  excommunication,  but  also  from 
the  use  of  fire  during  the  approaching  winter.*      This 

*  Toland's  Critical  History  of  the  Celtic  Religion  and  Learning, 
containing  an  Account  of  the  Druids,  p.  105. 


102    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

expedient  for  collecting  a  revenue  was  referred  to  by  the 
British  Chancellor  of  the  Exchequer,  in  a  speech  in  Par- 
liament in  1871,  in  connection  with  a  proposal  to  tax 
matches ;  and  the  motto,  Ex  luce  lucellum,  was  proposed 
to  be  inscribed  on  match  boxes  in  case  the  tax  was 
enacted.* 

Medieval  System  of  Land  Tenure. — Among  the 
nations  that  succeeded  to  the  sovereignty  of  Rome,  the  title 
and  ownership  of  land  were  regarded,  as  they  are  to-day  in 
China,  and  in  England  and  other  European  countries,  as 
inhering  primarily  to  the  sovereign  or  chief  of  the  state; 
and  when  partitioned  among  his  nobles  or  chiefs,  were  held 
by  them  as  it  was  termed  on  "  tenure  " ;  that  is,  on  condi- 
tion of  performing  certain  services — mainly  military,  or 
the  payment  of  a  tribute — in  the  nature  of  rent.  These 
conditions  were  ratified  by  oath;  and  the  chiefs  could 
only  sublet,  to  their  serfs  or  inferiors,  on  terms  consistent 
with  their  own  tenure. 

Largo  domains  were  also  set  apart  for  the  exclusive 
use  of  the  sovereign  f — both  in  his  public  and  private  ca- 
pacity— ^the  state  and  the  sovereign  being  one  and  the 
same;  and  from  the  revenues  thus  accruing,  and  various 
fees  and  feudal  incidents,  the  monarch,  or  feudal  lord,  was 
expected  to  defray  all  the  expenses  of  the  state,  both  public 
and  private.  Thus,  the  annual  revenue  of  William  the 
Conqueror  is  estimated  to  have  been  £400,000 ;  which,  tak- 
ing into  consideration  that  the  pound  at  that  time  con- 
tained three  times  the  weight  of  silver  that  it  now  does,  and 
that  silver  had  a  comparatively  great  purchasing  power, 
must  have  been  equivalent  to  at  least  four  or  five  millions 
of  present  money;  and  of  the  public  expenditures  of  these 
ages  it  is  important  to  note  that  there  were  very  few  that 

*  Dowell,  History  of  Taxation  in  England,  vol.  ii,  p.  367. 

t  The  royal  demesne  (right  of  ownership)  under  the  Norman 
kings  was  at  one  time  of  vast  extent,  comprising,  according  to 
Domesday  Book,  no  less  than  fourteen  hundred  and  twenty-two 
manors  or  lordships,  besides  farms  and  lands.  It  Avas  divided  into 
(1)  forest;  (2)  land  held  by  rural  tenants;  (3)  royal  cities, 
burghs,  and  towns.  Tlie  first  formed  the  king's  hunting  ground, 
and  afforded  supplies  of  venison,  etc.,  for  the  royal  table;  the 
second  supplied  the  king's  table  in  other  respects;  the  third  was 
mainly  the  source  of  contributions  for  the  discharge  of  the  king's 
debts. 


KEVENUE   FROM  DOMAINS.  103 

represented  the  bulk  of  the  expenditures  of  modern  govern- 
ments. 

Thus,  for  example,  education  was  mainly  confined  to 
the  clergy  and  the  Church;  and  was  efficiently  supported 
by  the  produce  of  their  own  estates,  or  by  tithes  levied  on 
the  estates  of  others.  There  were  few  roads,  and  the  labour 
of  the  serfs  or  peasants  for  a  few  days,  before  or  after 
harvest,  sufficed  to  keep  in  passable  condition  such  as  were 
needed  to  meet  the  demands  of  a  very  limited  intercourse 
and  commerce  between  different  sections  of  the  country. 
The  administration  of  justice  was  held  to  be  the  perquisite 
of  the  lords  or  chiefs  holding  their  estates  direct  from  the 
crown,  and,  in  place  of  being  an  expense,  became  through 
abuse  and  corruption  a  source  of  emolument.  The  stand- 
ing army,  which  more  than  any  one  agency  has  tended 
to  the  impoverishment  of  modern  Europe,  could  hardly 
be  said  to  have  then  existed;  the  tenants  in  chief  of 
the  crown  supporting  the  sovereign  whenever  he  took 
the  field  with  a  body  of  retainers,  armed  and  maintained 
in  a  large  degree  at  their  own  expense.  The  necessity 
of  taxes  in  the  ordinary  sense  was,  therefore,  by  these 
conditions  entirely  superseded;  and  if  at  any  time  there 
was  a  deficiency  of  revenue  from  the  crown  estates  and 
fees,  other  sources  of  revenue  were  resorted  to  in  prefer- 
ence to  anything  that  could  by  any  possibility  be  regarded 
as  taxes. 

Numerous  old-time  writers  of  authority — Montesquieu 
among  the  number — might  be  cited  in  support  of  what  was 
then  regarded  as  an  eminently  sound  principle,  that  gov- 
ernments ought  to  be  supported  from  revenues  derived 
from  the  public  domains,  and  that  taxation  should  be  re- 
sorted to  as  rarely  as  possible ;  because,  as  one  of  them 
expressed  it,  "  one  enters  into  civil  society  to  protect  one's 
property,  and  not  to  have  it  taken  away  from  him."  It 
is  also  interesting  to  note  in  this  connection  the  tendency 
at  the  present  time  to  go  back  to  this  old  doctrine,  and 
for  states  and  municipalities  to  derive  their  revenues  from 
other  sources  than  taxation — as  from  the  granting  of 
franchises  for  railways,  telegraphs,  telephones,  gas  supply, 
lotteries,  etc.,  on  condition  of  participation  in  profits  on 
gross  receipts.  Thus,  the  present  net  profit  on  the  German 
state  railways  is  understood  to  pay  one  third  of  the  interest 


104  THE  THEORY  AND  PRACTICE  OP  TAXATION. 

on  the  public  debt  of  Germany.  Nearly  all  the  Continental 
states  of  Europe  derive  a  considerable  portion  of  their 
needed  revenues  from  the  profits  of  their  domains  and 
forests — Prussia  to  the  extent  of  about  $11,000,000  per 
annum;  France,  $5,500,000;  Hungary,  $3,000,000,  and 
the  like.  The  city  of  Paris  derives  about  twenty  per  cent 
of  its  revenue  from  participation  in  the  operation  of  fran- 
chises and  income  from  productive  property.  In  Berlin 
eighteen  per  cent  of  all  the  municipal  expenses  are  reported 
as  derived  from  the  public  gas  supply.  In  Illinois  the  State 
expenses  are  mainly  defrayed  from  the  State's  share  of 
the  annual  profits  of  the  Illinois  Central  Railroad;  and 
in  Louisiana  also,  the  State  formerly  and  until  recently 
has  participated  in  the  profits  of  an  authorized  State  lot- 
tery. If  the  ideas  of  Mr.  Henry  George,  of  a  single  tax  on 
land,  should  prevail,  and  if  such  a  tax  does  not  diffuse 
itself,  then  the  entire  land  of  the  country  would  in  the 
course  of  time  become  the  property  of  the  state  exclusively ; 
and  the  old  principle  that  a  state  should  be  supported  from 
its  own  landed  resources  and  property  would  be  reasserted 
and  established. 

The  following  were  some  of  the  sources  of  revenue,  other 
than  what  were  assumed  to  be  taxes,  that  were  resorted  to 
in  mediaeval  times  to  make  good  any  deficiency  of  income 
which  the  crown,  as  representing  the  state,  derived  from 
its  special  properties  and  privileges;  and  a  reference  to 
which  is  important,  by  reason  of  the  flood  of  light  they 
shed  upon  the  concurrent  social  condition  of  the  masses, 
and  the  utter  disregard  of  their  rulers  of  anything  akin 
to  justice  in  their  administration  of  government.  One  of 
the  most  notable  of  these  sources  was  the  Jews,  who  dur- 
ing the  middle  ages  had  no  rights  of  citizenship  in  Chris- 
tianized Europe,  and  were  held,  in  respect  to  their  persons, 
goods,  wives  and  children,  at  the  absolute  disposal  of  the 
chief  of  the  state,  to  be  taxed  and  despoiled  by  him  at  his 
pleasure.  This  utilization  of  the  Jews  as  sources  of  revenue 
was  far  more  thoroughly  and  systematically  carried  out  in 
England  than  in  any  other  country.  "  They  were,  in  fact, 
the  private  property  of  the  king ;  living  instruments  of  his 
revenue;  carefully  protected  by  his  government,  unless  in 
cases  where  exceptional  necessity  on  his  part  or  obstinacy 
on  theirs  made  it  expedient  to  bear  upon  them  with  un- 


PLUNDER   OF   THE  JEWS.  105 

usual  weight ;  *  not  serfs  bound  to  the  soil,  but  slaves  of 
the  highest  value,  to  whom  to  allow  free  action  in  the 
acquisition  of  wealth  was  the  needful  condition  of  reap- 
ing the  fruit  of  their  labour.  There  is  a  writ  of  Henry  III 
in  which,  in  payment  of  a  debt  to  his  brother  Kichard  of 
Cornwall,  he  assigns  and  makes  over  to  him  "  all  my  Jews 
of  England."  f 

William  Rufus  (William  II  of  England)  actually  for- 
bade the  conversion  of  a  Jew  to  the  Christian  faith.  "  It 
was  a  poor  exchange,"  he  said,  "  that  would  rid  him  of  a 
valuable  property  and  give  him  only  a  subject." 

Under  Edward  I  of  England  the  Jews  were  plundered 
and  amerced  to  such  an  extent  that  it  is  estimated  that 
they  paid  over  one  tenth  of  the  entire  revenue  of  the  crown. 

An  explanation  of  the  apparently  anomalous  circum- 
stance that  the  Jews,  although  deprived  of  all  civil  rights 
and  debarred  from  following  most  occupations,  were  able 
to  be  plundered  to  such  an  extent,  is  found  in  the  fact 
that  they  were  the  "  royal  usurers,"  and  under  the  king's 
protection  spoliated  through  extreme  usurious  interest  the 
ISTorman  barons,  who  were  always  in  want  of  money,  and 
were  not  the  men  to  readily  tolerate  "  benevolences,"  or  any 
other  form  of  direct  taxation  for  supplying  the  king  with 
money  necessary  for  the  support  of  the  government.  So 
that  when  the  king  plundered  the  Jewish  money  lenders, 
he  in  reality  obtained  indirectly  the  money  he  needed  from 
his  barons,  with  far  less  odium  and  more  profit  than  if  he 
had  proceeded  against  them  indirectly. 

Very  curiously,  this  mediaeval  idea  of  regarding  the 
Jews  as  a  permanent,  legitimate,  and  desirable  source  of 
revenue  for  the  state,  continued  to  find  favour  in  England 
as  recently  as  the  reign  of  William  and  Mary,  or  in  1689 ; 
when,  money  being  needed  to  prosecute  the  war  with 
France,  it  was  seriously  proposed  to  exact,  under  the  sem- 


*  Such  a  case  of  urgent  necessity  or  inexcusable  obstinacy  must 
have  been  assumed  as  existing  by  King  John,  of  whom  it  is  re- 
lated that  on  one  occasion  he  demanded  the  sum  of  ten  thousand 
marks  (thirty  thousand  dollars)  of  a  Jew  at  Bristol,  and  on  his 
refusal  to  pay,  ordered  one  of  his  teeth  to  be  drawn  every  day 
until  he  should  comply.  The  Jew,  it  is  chronicled,  lost  seven  teeth 
and  then  paid  the  sum  required  of  him. 

t  Oxford  Essays.     By  J.  Bridges,  Fellow  of  Oriel. 


106    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

blance  of  taxation,  a  hundred  thousand  pounds  from  the 
Jews,  and  the  proposition  was  at  first  favourably  received 
by  the  House  of  Commons.  "  The  Jews,  however,  presented 
a  petition  to  Parliament  in  which  they  declared  that  they 
could  not  afford  to  pay  such  a  sum,  and  that  they  would 
rather  leave  the  kingdom  than  stay  there  and  be  ruined ; 
and  after  some  discussion  the  Jew  tax  was  abandoned." 
For,  as  Macaulay  expresses  it,  "  Enlightened  politicians 
could  not  but  perceive  that  special  taxation,  laid  on  a  small 
class  which  happens  to  be  rich,  unpopular,  and  defence- 
less, is  really  confiscation,  and  must  ultimately  impoverish 
rather  than  enrich  the  state."  * 

It  is  hardly  necessary  to  point  out  that  ill  treatment 
of  the  Jews  has  not  been  confined  to  English  rulers  and 
people.  In  every  country  or  state  of  Christendom  they  have 
been  subjected  to  arbitrary,  unequal,  and  unjust  exactions, 
deprived  of  ordinary  political  privileges,  and  driven  as 
homeless  wanderers  from  cities  which  their  presence  and 
their  purses  had  enriched.  And  that  this  race  antagonism 
continues  to  be  perpetuated  to  the  present  day,  is  demon- 
strated by  their  recent  and  virtual  expulsion  from  Eussia ; 
and  even  in  the  United  States  (where  it  might  least  be 
expected)  by  a  vulgar  and  brutal  denunciation  by  a  mem- 
ber of  the  Federal  Senate  of  the  chief  executive  officials  of 
the  country,  for  the  assumed  reason  that  they  had  entered 
into  a  fiscal  correspondence  with  an  Englishman  of  Jew- 
ish descent,  whom  England  had  admitted  to  a  seat  in  her 
Parliament,  and  whose  whole  life  had  been  characterized 
by  strict  integrity,  courtesy  to  all,  and  large  benevolence. 

Another  extraordinary  source  of  revenue  to  the  crown 

in  feudal  times  was  the  forfeiture  of  lands  and  estates  for 

offences ;  and  of  the  immense  sums  thus  obtained,  some  idea 

may  be  formed  from  the  circumstance,  that  up  to  the  time 

of  Elizabeth  it  has  been  estimated  that  nearly  all  the  land 

^n  England  had  at  some  time  fallen  to  the  crown  under 

\  the  law  of  forfeitures.     Other  devices  for  the  raising  of 

A  revenue  which  were  very  productive,  were  fines  for  the 

alienation  (legal  conveyance)  of  land,  which  were  exacted 

oftentimes  to  the  extent  of  one  third  of  their  yearly  value, 

whenever  the  tenant  found  it  necessary  to  make  over  his 

*  Macaulay's  History  of  England,  vol,  iii,  chap.  xv. 


RIGHT  OF  ROYAL  FISH.  107 

land  to  another;  and  from  the  sale  of  titles,  which  even 
as  late  as  1626,  under  Charles  I,  afforded  considerable  reve- 
nues. The  right  of  marriage  was  subject  (at  least  in  the 
case  of  nobles  and  gentry)  to  the  consent  of  the  crown; 
and  in  some  instances  large  sums  were  paid  for  the  privi- 
lege; Simon  de  Montfort  paying  Henry  III  a  sum,  equiva- 
lent to  five  hundred  thousand  dollars  at  present,  for  per- 
mission to  control  the  marriage  of  the  heir  of  Gilbert 
d'Unfrankville.  Mr.  Dowell,  in  his  History  of  Taxation  in 
England,  quotes  the  following  as  among  one  of  the  "  fiscal 
curiosities  "  to  be  found  on  the  Eolls  of  the  Exchequer 
during  the  early  Norman  period :  "  Ralph  Bardolph  fines 
in  five  marks  for  leave  to  arise  from  his  infirmity.  The 
Bishop  of  Winchester  owes  a  tonell  of  good  wine  for  not 
reminding  the  king  (John)  about  a  girdle  for  the  Countess 
of  Albemarle;  and  Robert  de  Vaux  fines  in  five  of  the 
best  palfreys,  that  the  same  king  would  hold  his  tongue 
about  the  wife  of  Henry  Pinel."  * 

Another  branch  of  the  ancient  revenues  of  the  English 
crown  worthy  of  special  notice  from  its  singular  recog- 
nition within  a  comparatively  recent  period,  was  the  right 
to  "  royal  fish,"  meaning  thereby  the  whale  and  the  stur- 
geon, when  the  same  were  either  cast  ashore  or  caught  near 
the  coast ;  and  which  were  originally  acquired  by  the  crown 
on  the  assumption  that  the  sovereign  guarded  and  protected 
the  seas  from  pirates  and  robbers.  This  perquisite  had 
so  long  been  in  abeyance  that  its  sanction  by  law  was  hardly 
recognised  in  1850,  when  the  Duke  of  Wellington,  as  Lord 
Warden  of  the  Cinque  Ports,  claimed  and  exacted  the 
price — fifty  pounds— of  the  carcass  of  a  whale  brought 
ashore  and  sold  by  certain  boatmen  on  the  coast  of  Kent. 
A  point  of  contention  was  made  by  the  boatmen,  that, 
since  the  law  was  enacted,  natural  science  had  proved  that 
the  whale  was  not  a  fish;  but  the  duke  insisted  upon  his 
right  under  the  letter  of  the  law  of  compact  with  his  office 
of  warden — i.  e.,  to  protect  the  seas — as  representative  of 
the  sovereign,  and  maintained  it.  He,  however,  subse- 
quently practically  admitted  the  lack  of  any  moral  founda- 
tion for  his  claim  by  dividing  the  price,  after  it  had  been 
formally  paid  him,  with  the  boatmen. 

*  Dowell,  vol.  i,  p.  28. 


108    THE  THEORY  AND   PRACTICE  OP   TAXATION. 

Taxation  in  England. — Previous  to  the  reign  of 
Henry  II  of  England  (1154),  the  "tenure"  or  holding 
of  hinds  from  the  crown  required  the  personal  attendance, 
at  his  own  expense,  of  every  tenant — knight  or  baron — 
with  a  certain  number  of  retainers,  upon  the  king  in  arms, 
for  a  period  of  forty  days  in  each  year;  and  failure  to 
attend,  or  render  the  quota  of  men  required  by  the  tenure, 
would  have  involved  a  forfeiture  of  the  tenant's  lands  for 
nonperformance  of  duty.  Such  a  military  system,  how- 
ever sufficient  for  home  protection  or  border  warfare,  proved 
ill  adapted  to  foreign  wars,  which  in  the  case  of  France 
were  for  a  long  period  almost  continuous ;  inasmuch  as  in 
those  days  of  slow  travelling  a  forty  days'  service  upon  a 
distant  expedition  would  have  been  of  little  account.  For 
what  could  be  more  inconvenient  for  the  leader  of  an  army 
than  to  be  under  the  necessity,  on  the  expiration  of  the 
forty  days,  either  to  cut  short  the  campaign,  or  purchase, 
by  payments  or  promises,  the  continued  service  of  his  best 
soldiers?  To  overcome  this  difficulty  a  new  system  was 
arranged,  it  is  said,  by  Thomas  a  Becket,  which  marked 
an  important  era  in  English  taxation;  whereby  the  king, 
in  lieu  of  personal  service  by  his  barons  and  their  retainers, 
agreed  to  substitute  a  tax  called  "  scutage,"  or  shield  tax ; 
which,  as  levied  at  the  rate  of  ten  marks  (£1  6s.  8fi.)  on 
every  estate  held  by  tenure,  of  the  annual  value  of  twenty 
pounds,  was  a  land  tax,  payable  in  money,  which  before 
that  period  had  not  been  definitely  recognised.  And  thus 
it  was  that  the  king  practically  disarmed  the  feudal  power 
by  accepting  money  from  the  knights  in  place  of  armed 
service,  and  at  the  same  time  greatly  strengthened  his  own 
power;  as  with  the  money  thus  raised  he  created  a  per- 
manent and  subservient  army  of  mercenaries — a  process 
which  Michelet,  the  French  historian,  has  characterized  as 
a  provision  by  the  nobles  of  a  bit  and  bridle  for  their  own 
restraint.* 


*  The  reicrn  of  this  English  king — Henry  II — is  also  signalized 
by  an  organization  of  the  royal  (state)  revenue  system  which  in 
some  of  its  features  has  continued  to  the  present  time.  Under  it 
the  management  and  general  superintendence  of  the  royal .  revenues 
were  intrusted  to  certain  officers  of  the  king's  household,  who  con- 
stituted the  "  Court  of  the  Exchequer,"  so  called  from  the  checkered 
cloth  laid  upon  the  table  upon  which  the  tax  collectors  or  treas- 


ORIGIN  OF   PARLIAMENTS.  109 

Historians  can  find  no  evidence  that  the  right  of  the 
Englisli  kings  to  levy  taxes  was  in  any  case  made  contingent 
on  any  formal  grant  of  any  national  council  until  toward 
the  close  of  the  reign  of  Kichard  II  (1190)  ;  *  and  we  have 
a  statement  from  the  historian  Hallam  that,  previous  to 
that  time,  the  system  of  extortion  practised  by  the  Nor- 
man kings  upon  their  English  subjects  was  "  what  we 
should  expect  to  find  among  Eastern  slaves." 

Progressive  civilization  and  the  necessity  for  larger 
revenues  than  the  domains  and  perquisites  of  the  crown 
could  supply  to  meet  the  expenditures  of  continued  wars 
and  the  maintenance  of  standing  armies,  gradually,  how- 
ever, broke  down  (as  has  been  before  pointed  out)  the 
feudal  system  for  defraying  the  expenses  of  the  govern- 
ment; and  the  sovereigns  were  compelled  to  petition  their 
tenants  in  chief,  or  the  representatives  of  the  great  estates 
of  their  realms,  to  meet  in  assembly  and  co-operate  with 
the  crown  in  raising  revenue  by  a  more  or  less  general  sys- 
tem of  forced  contributions  upon  the  persons  and  property 
of  the  people.  And  in  this  necessity  is  to  be  found  the 
origin  of  the  modern  parliaments  or  states  general;  and 
also  the  inception  of  the  modern  system  of  taxation  through 


iirers  told  out  the  king's  money:  and  the  chief  financial  officer 
of  the  British  Government  at  the  present  time  is  designated  by  the 
title  of  "  Chancellor  of  the  Exchequer."  The  payments  when  made 
were  entered  into  an  account  book,  and  from  this  transferred  to  a 
strip  of  parchment;  which  last  was  sent  through  a  pipelike  open- 
ing into  a  room  specially  provided,  and  called  a  "tally  count," 
where  a  "  tally  "  was  made  of  it.  This  tally  was  a  piece  of  dry 
wood  on  which  "  the  cutter  of  the  tallies "  had  to  cut  notches 
corresponding  to  the  sum  paid,  while  the  "  writer  of  the  tally  " 
wrote  the  sum  down  on  both  sides  of  the  wood  in  figures.  Ac- 
cording to  the  length  of  the  incision,  one  notch  denoted  £1.000: 
another  £100:  £20:  20s.;  Is.;  and  so  on.  The  chamberlain  then 
split  the  notched  stick  down  the  middle  in  such  a  manner  that 
each  half  contained  the  written  sums  and  the  incised  notches. 
The  two  matching  parts  thus  split  asunder  were  called  "  tally  " 
and  "counter  tally,"  or  "tally"  and  "foil"  (folium).  The  one 
was  retained  by  the  chamberlain,  the  other  was  kept  by  the  payer 
as  a  receipt  and  proof  to  be  produced  to  the  account  department 
of  the  exchequer.  This  curious  system  of  receipts  was  maintained 
in  force  until  17S3:  and  it  was  through  the  burning,  with  a  view 
to  getting  rid  of  an  accumulation  of  these  tally  sticks,  that  the 
old  House  of  Parliament  in  London  was  burned  in  1834. 
*  Stubbs,  Constitutional  History  of  England,  vol.  i,  p.  577. 


110    THE  THEORY  AND   PRACTICE  OF  TAXATION. 

the  representatives  of  the  people.  And  the  manner  in 
which  the  great  principle  that  representation  should  ac- 
company taxation  began  to  find  a  place  in  English  legal 
or  economic  experience,  through  what  was  clearly  a  process 
of  evolution,  was  undoubtedly  as  follows : 

Under  the  Saxon  and,  for  a  lengthened  period,  also 
under  the  Norman  kings,  the  revenues  of  the  crown  (as 
before  shown)  were  mainly  derived  from  taxes  on  land, 
which  were  paid  in  kind  (produce),  and  what,  as  the  hold- 
ers of  land  were  regarded  as  tenants  of  the  crown,  were  in 
the  nature  of  rents.*  But  when,  in  order  to  enlarge  the 
basis  of  revenue,  personal  property,  in  the  form  of  mov- 
ables or  income,  was  brought  under  contribution,  the  situ- 
ation became  different;  inasmuch  as  the  titles  of  all  such 
property  not  being  primarily  derived  from  the  king,  the 
consent  of  its  owners  to  an  official  inquisition,  necessary 
for  proper  valuation  and  assessment,  was  implied,  and 
naturally  was  not  willingly  granted.  And  the  great  re- 
ligious houses  and  orders,  who  in  the  main  were  the  prin- 
cipal owners  at  this  time  of  such  property  and  were  all- 
powerful,  especially  insisted  that  this  consent  should  be 
recognised  as  a  prerequisite  to  assessment;  and,  in  at  least 
one  instance,  re-enforced  their  position  by  an  interdict  from 
the  Pope. 

The  successive  steps,  also,  by  which  this  great  principle 
became  recognised  and  incorporated  into  general  practice 
have  also  been  clearly  worked  out  by  historians.  Thus, 
in  1181,  under  the  reign  of  Henry  II,  each  freeman  was 
required  to  equip  himself  (for  war)  according  to  his  means; 
and  to  determine  what  his  means  were,  or  his  liability  for 
taxation  in  respect  to  other  than  landed  property — namely, 
chattels  and  income — four  or  six  lawful  men  of  his  parish 
were  chosen  to  determine  and  declare  under  oath  the  extent 
of  his  personal  liability.    In  the  next  reign,  that  of  Richard 


*  Rents  (taxes)  paid  in  kind  eontinued  in  force  in  England  after 
the  Conquest,  and  certainly  down  to  the  reign  of  Henry  I.  In- 
deed, by  reason  of  the  scarcity  of  money,  there  was  practically 
no  other  method  of  payment.  But  at  the  same  time  the  collectors 
of  the  king's  revenue,  in  the  settlements  of  their  accounts,  were 
accustomed  to  reckon  the  value  of  produce  in  money  at  an  estab- 
lished ratio:  as,  an  ox  at  l.s. ;  a  sheep  at  4d. ;  so  many  measures 
of  corn  at  so  much,  and  the  like. 


TAXES  AND  ENGLISH  LIBERTY.  HI 

I,  this  new  principle  of  jury  assessment  was  applied  in  a 
general  way  to  the  assessment  of  lands  as  well  as  chattels ; 
and  from  thence  the  representative  principle  in  taxation 
begins  to  ascend  through  successive  stages,  until  it  becomes 
established  and  recognised  as  the  highest  function  of  the 
British  and  all  other  essentially  free  governments.* 

The  abandonment,  furthermore,  of  the  right  on  the 
part  of  the  sovereign  to  make  arbitrary  exactions  in  respect 
to  personal  property,  and  the  assumption  by  a  class  of 
privileged  subordinates — i.  e.,  legislators — of  the  right  to 
vote,  or  deny  supplies  to  the  king  or  state,  and  for  the 
attainment  of  which  results  the  English  clergy  of  the  thir- 
teenth century  led  the  way,  marks  also  the  dawn  of  con- 
stitutional or  free  government.  All  authorities  are  agreed, 
that  on  the  clause  in  the  Magna  Charta  of  1215  respecting 
the  taxing  power,  is  based  all  that  has  since  been  achieved 
in  respect  to  English  liberty.  By  it  the  king  (John)  was 
allowed  to  reserve  for  himself  iDut  three  feudal  aids,  or 
rights,  for  extraordinary  money  allowances  from  the  state, 
which  very  curiously  have  never  been  alienated  from  the 
English  crown  by  any  subsequent  legislative  enactment: 

*  It  is,  however,  worthy  of  note  that  the  only  time  when  this 
siibjeot  appears  to  have  prominently  attracted  the  attention  of  the 
British  Parliament  and  occasioned  debate  was  in  connection  with 
the  imposition  of  taxes,  without  representation,  on  the  British 
colonies  in  North  America,  and  which  assumption  of  right  on  the 
part  of  the  crown  to  thus  act,  subsequently  led  to  the  American 
Revolution.  The  question  at  issue  before  Parliament  was,  Had  the 
state  the  right  of  taxing  the  colonies  under  existing  circumstances, 
in  default  of  representation  of  the  taxpayers?  The  colonists  did 
not  deny  the  right  of  Great  Britain  to  tax  them;  but  they  did 
hold  that  for  the  people  of  Great  Britain  to  appropriate  any  part 
of  the  property  without  their  consent  was  neither  reasonable  nor 
consistent  with  the  British  Constitution.  And  in  the  great  debate 
in  Parliament  on  this  subject,  in  1764,  Mr.  Pitt  sustained  the 
position  of  the  colonists;  and  Lord  Camden,  who  followed,  said 
that  "  taxation  and  representation  were  inseparable,"  and  that  a 
blade  of  grass  growing  in  the  most  obscure  part  of  the  kingdom 
could  not  rightfully  be  taxed  without  the  consent  of  its  proprietor. 

Recent  historical  investigations  have,  however,  shown  (as  be- 
fore pointed  out,  chapter  ii)  that  the  grievance  alleged  and  com- 
plained of  by  the  American  colonists  was  not  peculiar  to  them, 
but  was  shared  by  the  people  of  the  mother  country  to  such  an 
extent  that  at  the  time  of  the  colonial  revolt  not  one  tenth  of 
them  were  allowed  to  participate  by  vote  in  the  election  of  mem- 
bers of  Parliament. 


112    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

namely,  to  ransom  the  king  in  the  case  of  his  capture  by 
an  enemy;  to  defray  the  expenses  of  the  knighthood  of  his 
eldest  son;  and  third,  on  account  of  expenses  incident  to 
the  marriage  of  his  eldest  daughter.  In  all  other  respects 
the  charter  provides  that  "  no  scutage  " — by  which  is  under- 
stood a  land  tax  in  commutation  for  personal  military 
service — "  or  aid  shall  be  imposed  in  our  realm,  save  by 
the  Common  Council  of  our  realm"  ;  and  this  provision 
of  the  Great  Charter  was  more  explicitly  reaffirmed  and 
embodied  in  the  form  of  law  by  a  Parliament  in  1297, 
which  enacted  that  no  tax  should  be  levied  by  the  king 
without  the  consent  of  the  knights,  burgesses,  and  citizens 
in  Parliament  assembled. 

Again,  in  the  earlier  periods  of  English  history,  and 
probably  also  in  the  history  of  the  other  states  of  Europe, 
when  the  revenues  from  the  property,  fees,  and  perquisites 
of  the  crown,  supplemented  as  they  were  from  time  to  time 
by  special  parliamentary  grants,  benevolences,  and  sub- 
sidies, and  the  plunder  of  special  classes — as  the  Jews — 
were  found  inconvenient  and  unreliable,  and  were  replaced 
by  more  regular  systems  of  contribution,  the  idea  of  taxa- 
tion'was,  as  centuries  before  in  Eome,  simply  to  obtain  the 
necessary  revenue,  without  much  regard  to  the  incidence 
of  the  tax  or  the  interest  of  the  producer,  consumer,  or 
trader.  The  end  was  alone  considered,  and  not  the  means ; 
and  this  policy,  pervading  all  schemes  and  experiences  of 
taxation,  was  then,  as  it  ever  has  been,  the  most  fertile 
source  of  bad  taxes.  The  objects  from  which  contributions 
at  the  period  under  consideration  could  be  obtained  were 
almost  exclusively  tangible  and  readily  visible,  as  lands, 
hearths  (representing  houses),  cattle,  slaves  or  serfs,  and 
the  crudest  of  agricultural  products.  But  as  trade,  or  the 
business  of  exchanging,  increased,  it  soon  came  to  be  looked 
vipon  as  a  proper  subject  for  exaction.  Customs,  or  taxes 
upon  trade,  were  accordingly  very  early  established,  and  at 
first  were  probably  confined  to  domestic  or  internal  trade. 
But  with  the  rise  and  growth  of  foreign  commerce  the 
practice  very  naturally  extended  to  foreign  trade,  and  the 
terms  "  customs  "  and  "  duties,"  which  had  an  antecedent 
origin  and  meaning,  eventually  became  restricted  in  their 
application  to  "  taxes  "  or  "  exactions  "  on  exports  and  im- 
ports.     But  yet  so  slowly  did  the  customs  in  this  sense 


CUSTOMS  AND  TOLLS.  113 

become  an  important  source  of  English  revenue,  that  the 
entire  amount  collected  in  1603  was  but  £127,000,  or  but 
little  in  excess  of  $630,000.  Such  taxes  at  the  outset  were 
furthermore  held  to  be  the  king's  private  or  personal  dues, 
to  be  levied  by  him  independently  of  any  statute,  according 
to  his  discretion,  or,  rather,  according  to  his  necessities; 
and  it  was  not  until  the  reign  of  Edward  I  that  Parlia- 
ment undertook  to  interfere  with  what  had  been  considered 
an  hereditary  right  of  the  crown,  by  providing  in  1275  that 
for  the  purpose  of  correcting  irregular  seizures  and  exac- 
tions, a  limitation  should  be  established  on  the  amount  of 
duty  that  the  king  might  take  on  the  exports  of  wool  and 
leather;  and  the  duties  thus  regulated  by  statute  on  these 
two  articles  are  regarded  as  the  first  legal  foundation  of 
the  English  customs  revenue.  But  before  the  close  of  the 
reign  of  Edward  III,  or  in  1353,  the  exclusive  right  of 
Parliament  to  authorize  or  control  every  form  of  indirect 
taxation  was  fully  established,  and  for  the  time  fully  exer- 
cised; and  the  right  thus  achieved  by  the  representatives 
of  the  people  of  participating  in  the  levy  of  indirect  or  cus- 
toms taxation,  also  necessarily  drew  with  it  the  right  to 
participate  in  general  legislation,  or  upon  all  subjects  which 
Parliament  might  deem  proper. 

It  is  also  interesting  to  recall  in  connection  with  this 
subject,  that  when  the  old  English  kings  began  to  levy  tolls 
on  ships  entering  into  harbours,  in  common  with  tolls  on 
transportation  by  roads  and  navigable  streams,  the  tax  was 
on  the  ship  directly,  and  not  specifically  upon  its  contents. 
And  in  early  charters  instances  occur  of  grants  to  individ- 
uals or  monasteries  of  an  exemption  from  toll  for  one  ship 
of  burden ;  and  in  the  event  of  the  destruction  of  the  par- 
ticular ship,  the  privilege  was  extended  to  another  ship. 
But  with  such  tolls  or  taxes  once  established,  the  idea  soon 
developed  that  like  forms  of  exaction  might  be  made  to 
serve  a  commercial  purpose  as  well  as  produce  revenue; 
and,  as  might  have  been  expected,  they  therefore  early  be- 
came instrumentalities  for  fiscal  oppression;  and,  with  a 
view  of  advancing  the  interests  of  English  merchants,  or  of 
protecting  native  industries,  they  were  especially  directed 
against  the  commerce  of  foreigners.  And  whjle  the  crown, 
as  early  as  1275,  was  deprived  of  much  of  its  arbitrary 
power  of  levying  customs  for  revenue,  its  prerogative  of 


114    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

restraining  trade  and  imposing  onerous  burdens  on  ex- 
changes with  foreigners  remained  not  only  undisturbed 
but  undisputed.  Foreign  merchants,  or  trading  companies, 
frequently  purchased  immunity  from  such  exactions;  but 
yet,  according  to  Mr.  Hall,  in  his  History  of  the  English 
"  Customs,"  "  to  the  '  custos '  of  the  ports,  to  the  riverside 
baron,  to  the  wayside  outlaw  and  the  town  apprentice,  the 
Lombard  or  Flemish  peddler  or  merchant  appeared  as  fair 
game  for  violence  and  extortion  of  every  kind."  And  in 
the  earlier  records  of  England's  customs  experience,  their 
oppressive  features  are  of  higher  interest  than  tlieir  reve- 
nue or  fiscal  characteristics.  English  producers  and  traders, 
furthermore,  having  secured  immunity  from  arbitrary  taxa- 
tion themselves,  were  quite  willing  to  see  this  instrument 
of  restraint  and  oppression  turned  against  their  foreign 
competitors;  and,  accordingly,  during  the  whole  of  the 
sixteenth,  seventeenth,  and  eighteenth  centuries,  and  the 
first  quarter  of  the  nineteenth  century,  the  whole  commer- 
cial policy  of  England  was  based  on  the  theory  of  the  so- 
called  "  mercantile  system  " ;  the  fundamental  principle 
of  which  was  that  commerce  could  benefit  one  country  only 
to  the  extent  that  it  injured  another;  and  that  it  was  the 
part  of  wisdom  always  to  secure  a  favourable  balance  of 
trade  by  selling  as  much  and  buying  as  little  as  possible, 
and  receiving  pay  for  what  was  sold,  not  in  other  useful 
products,  but  in  gold. 

But  notwithstanding  the  early  restrictions  imposed  by 
Parliament  on  the  power  of  the  crown  to  appropriate  the 
property  of  the  people  for  its  support,  arbitrary  exactions 
in  the  name  of  taxation  continued  to  characterize  the  rule 
of  all  the  English  monarchs  down  to  the  time  of  Charles 
I,  when  the  claim  of  the  king  to  a  divine  right  to  take 
taxes  from  subjects,  with  or  without  their  consent,  was 
settled  by  the  dethronement  and  execution  of  the  monarch 
'  and  the  establishment  of  the  Commonwealth;  and  ever 
since  then  the  grants  of  an  annual  Parliament  have  been 
a  prerequisite  to  any  lawful  expenditure  for  the  main- 
tenance of  the  English  state. 

To  the  necessities  of  the  Long  Parliament,  during  its 
contest  with  the  crown,  and  when  the  receipts  of  revenue 
from  former  sources  were  interrupted,  we  owe  the  perma- 
nent incorporation  of  the  so-called  excise  taxes  into  the 


LAND  TAX  AND  AMERICA.  115 

tax  system  of  England.  Another  most  novel  contrivance  V 
of  this  period  for  the  raising  of  revenue  was  the  so-called 
weekly  impost  of  a  single  meal ;  every  citizen  being  required 
to  retrench  one  meal  per  week  and  pay  an  amount  repre- 
senting the  saving,  in  the  form  of  money,  into  the  public 
treasury ;  a  tax  that  yielded  in  six  years  £608,400,  or  more 
than  $3,000,000 ;  an  aggregate  that  represented  a  far  larger 
purchasing  power  than  the  same  amount  would  at  present.  5;^ 

During  the  nineteen  years  that  elapsed  from  the  begin- 
ning of  the  English  Revolution  to  the  restoration  of  the 
monarchy  under  Charles  II,  the  average  annual  expendi- 
tures of  the  Commonwealth  were  about  seven  times  greater 
than  those  of  the  preceding  royal  Government ;  and  as  un- 
lawful taxation  was  the  prime  cause  of  the  establishment 
of  the  Commonwealth,  so  excessive  taxation  furnished  the 
prime  cause  of  popular  rejoicing  when  the  Commonwealth 
was  got  rid  of. 

A  circumstance  of  no  little  importance,  but  which  som^^ 
historians  have  overlooked,  is,  that  the  revolt  of  the  Ameri- 
can colonies  and  their  separation  from  Great  Britain  were 
in  the  first  instance  due  to  an  effort  on  the  part  of  the       t^ 
landholders  of  Great  Britain  to  transfer  from  themselves         "^ 
to  the  people  an  ever-increasing  portion  of  the  expenses  n 
of  the  Government.     But  such  was  the  fact.     In  1767  the     "^,1^     ,,•> 
British  Parliament,  which  was  mainly  composed  of  land-        ^XS^ 
holders,  reduced  the  previously  existing  land  tax  to  the  "       ^' 
extent  of  about  half  a  million  pounds  per  annum;  and  '^t/;Q 
was  for  the  purpose  of  making  up  a  resulting  deficiency"       "\ 
of  receipts  to  the  British  treasury,  that  the  Chancellor  of 
the  Exchequer  of  George  III  resorted  to  the  taxation  of      ,.    '^ 
tea,  glass,  and  other  articles  imported  into  the  American!      j\     _  C^ 
colonies,  as  well  as  the  requirement  for  the  use  of  stamps!      ^7^       ^ 
on  the  paper  instrumentalities  used  by  the  Americans,  and  x^ 

the  payment  for  which  the  colonists  resisted. 

Finally,  a  feature  of  special  importance  in  connection 
with  the  history  of  English  tax  experiences,  one  often  over- 
looked in  historical  essays  and  discussions,  but  which  ought 
to  command  the  attention  of  all  interested  in  the  origin  of 
the  structure  and  diversities  of  governments,  is  the  demon- 
stration it  affords  of  the  close  connection  between  taxa- 
tion and  popular  liberty.  Take  up  the  history  of  any 
people,  state,  or  nation  that  has  fought  its  way,  like  Eng- 


116    THE  THEORY  AND   PRACTICE  OP  TAXATION. 

.•    land,  out  of  despotism  into  liberty,  and  what  are  the  trans- 
Y    actions   that   most   significantly   mark   and   constitute   its 
y^y*^     progress?     The  story  is  substantially  the  same  in  every 
-KT     ^     case.    First,  a  government  of  might  supported  by  arbitrary 
[y  exactions    from    persons    and    property — tribute,     taille, 

.  ^.  scutage,  gabelle,  corvee,  escheats,  octroi,  vingtieme,  customs 

j\  Jr^  r^-^      duties,  subsidies,  benevolences,  and  the  like — levied  at  the 
'->      ^'      ■■  vr]i\  Qj.  caprice  of  an  absolute  and  despotic  chief  or  mon- 
arch, and  without  any  consultation  with  or  assent  of  the 
governed.     Then,  in  some  hour  of  royal  adversity  or  need, 
the  monarch  appeals  for  aid  to  the  more  powerful  of  his 
'Vr    subjects — lords  and  nobles — who,  in  turn,  taking  advan- 
\y  v^^tage  of  the  situation,  vote  or  grant  it,  in  consideration  of 
^t/^  V*"*  the  concession  of  some  "  Magna   Charta,"  limiting  in  a 
Y      ^^       measure  the  sphere  of  exactions  on  the  part  of  the  mon- 
^  arch,  or  at  least  securing  to  a  few  of  his  privileged  subordi- 

^  nates  a  voice  in  regulating  and  legalizing  the  same.    Later 

comes  the  struggle  between  the  privileged  few  and  the 
unprivileged  many,  and  sooner  or  later,  by  peaceful  political 
progress,  or  by  violence  and  revolution,  the  privileged  class 
ceases  to  be  a  separate  potential  element  of  the  state,  and 
thence  passes  to  the  people  the  sole  right  to  determine, 
through  their  chosen  representatives,  what  grants  of  sup- 
plies shall  be  made  for  the  support  of  the  state,  and  how 
the  burden  of  taxation  which  they  entail  shall  be  dis- 
tributed. And  then,  if  fiirther  progress  is  to  be  achieved, 
to  the  end  that  in  exercising  the  great  power  of  appro- 
priating private  property  for  defraying  the  expenses  of 
government,  no  more  be  taken  than  is  necessary ;  that  none 
shall  be  assessed  unequally ;  that  the  greatest  freedom  may 
be  secured  for  production  and  distribution,  and  the  greatest 
restrictions  placed  on  monopolies,  there  must  be,  through 
study  and  investigation,  such  an  improvement  and  remodel- 
ling of  all  existing  systems  of  taxation  as  will  completely 
eliminate  from  them  all  practices  that  rest  upon  no  better 
basis  than  old  prejudices  and  narrow,  selfish  interests,  and 
make  them  conformable  to  principles  and  conditions  which, 
when  presented  abstractly,  will  command  almost  universal 
assent. 


CHAPTER  V. 

TAXATION    IN    FRANCE    AND   MEXICO. 

No  chapter  in  history  is  more  replete  with  interest  and 
instruction  than  that  which  exhibits  the  system  for  exact- 
ing contributions  for  the  support  of  the  state  which  char- 
acterized the  fiscal  policy  and  administration  of  France 
during  the  seventeenth  and  eighteenth  centuries,  and  which 
is  now  acknowledged  to  have  been  mainly  instrumental  in 
bringing  on  the  memorable  Revolution  in  the  closing  years 
of  the  latter  century. 

Feudalism  in  France,  previous  to  1789,  had  come  to 
find  its  expression  almost  exclusively  in  the  claims  on  the 
part  of  the  various  and  multiplied  representatives  of  au- 
thority— nobility  and  clergy — to  regulate  taxation,  in  re- 
spect to  both  imposition  and  exemption. 

The  kingdom  was  divided  into  departments,  with  an 
officer  called  an  "  intendant "  or  "farmer-general"  {fer- 
mier  general\  at  the  head  of  each,  into  whose  hands  the 
whole  power  of  the  crown  in  respect  to  revenue  matters  was 
delegated.  Each  department  was  then  subdivided,  and 
at  the  head  of  each  of  these  subdivisions  a  deputy  was 
appointed  by  the  intendant.  The  rolls  or  lists  of  the  vari- 
ous crown  taxes,  for  polls,  service,  incomes,  "  proportions," 
and  the  like,  were  distrilDuted  by  the  intendants  to  their 
deputies,  who  had  the  power  to  exempt,  change,  add  to, 
or  diminish  the  list  at  their  pleasure. 

It  must  be  obvious,  that  the  friends  of  the  intendant 
and  of  all  his  deputies,  and  the  friends  of  their  friends, 
might  be  favoured  at  the  expense  of  the  helpless  masses; 
and  that  great  noblemen  in  favour  at  the  court,  to  whom 
the  intendant  himself  would  naturally  look  for  protection, 
would  especially  find  little  difficulty  in  transferring  most 
or  all  of  the  burden  of  tribute  rightfully  due  from  them 

117 


118    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

to  the  state,  to  others  who  had  no  such  influence.  The 
result  was  that  taxation  in  France  at  the  period  mentioned 
had  become  in  the  highest  degree  arbitrary,  and  a  scarcely 
disguised  form  of  plunder;  and  the  methods  of  assessment 
were  so  crude  and  defective  that  it  is  probable  that  the  state 
never  received  fifty  per  cent  of  the  amount  collected,  and 
in  many  cases  no  more  than  forty  or  thirty  per  cent.  The 
expenditures  of  the  revenues  received  were,  moreover,  char- 
acterized by  so  little  system  as  to  render  it  difficult  to  exer- 
cise any  efficient  check  upon  them,  or  to  ascertain  accurately 
at  any  one  time  (as  was  especially  the  case  during  the  latter 
third  of  the  eighteenth  century)  the  true  state  of  the 
national  exchequer ;  all  of  which  fostered  indefensible  waste 
and  extravagance.  At  the  death  of  Louis  XV  in  1774,  the 
annual  expenditure  of  the  king  and  his  household  probably 
amounted  to  one  eighth  of  the  entire  revenue  of  the  state,* 
and  the  total  indebtedness  of  the  state  in  1789,  the  year 
of  the  commencement  of  the  Revolution,  was  estimated  as 
being  in  excess  of  $1,000,000,000,  carrying  an  annual  in- 
terest of  $206,000,000;  and  it  is  to  be  remembered  that 
these  figures  must  be  at  least  doubled  to  represent  the  cor- 
responding sums  of  the  present  day.  All  this  indebtedness, 
and  all  that  was  subsequently  incurred  through  the  issue 
of  irredeemable  assignats  "  (paper  or  fiat  money),  was 
'  ultimately,  through  one  means  or  another,  entirely  repu- 
diated. 

/     In  the  collection  of  levies  the  inquisitorial,  infinitesimal 
/assessment  and  dooming  penalty  system,  the  like  of  which 
/  still  finds  favour  in  Massachusetts,  was  carried  out  to  per- 
—    fection;  and  the  only  rule  of  practice  which  in  different 
districts  could  prefer  any  claim  to  uniformity,  was  the 
rule  of  inequality  of  assessment,  and  harshness  and  cruelty 
in  collection.     Arthur  Young,  an  English  gentleman  of 
culture  and  keen  powers  of  observation,  who  travelled  in 
France  in  1787-'89,  states,  in  recording  the  above  experi- 
ences, that  "  he  shuddered  at  the  oppression  of  which  he 
became  cognizant." 

One  of  the  chief  sources  of  revenue  to  the  state  was 

*  There  were  seventy-five  officers  connected  with  the  king's 
chapel  alone;  forty-eight  physicians,  surgeons,  and  apothecaries 
attached  to  his  person ;  and  three  hundred  and  eighty-three  men 
and  one  hundred  and  thirty-three  boys  employed  for  his  table. 


THE  TAILLE  IN  FRANCE.  119 

from  an  exaction  known  as  the  taille*  which  was  mainly 
in  the  nature  of  a  direct  tax  on  land,  though  in  some  prov- 
inces it  was  a  levy  on  both  polls  and  land.  The  history  of 
this  exaction  has  been  carefully  investigated  and  is  not  a 
little  interesting.  It  originated  in  the  early  feudal  period, 
and  was  imposed  on  persons  originally  bondsmen,  or  on 
persons  who  held  in  "  farm,''  or  lease,  #or  resided  on  the 
lands  of  a  noble  or  suzerain,  and  from  which  the  proprie- 
tors or  suzerains  of  the  land  were  exempt.  And  as  no 
vassal  could  at  will  divest  himself  of  servitude  or  allegiance 
to  his  lord  or  suzerain,  so  the  obligation  to  pay  tribute 
(taxes?)  always  remained  upon  him  as  a  personal  servitude, 
wherever  he  might  be.  In  other  words,  the  condition  of 
the  masses  in  France  during  the  middle  ages  was  not  un- 
like the  condition  of  the  slaves  in  the  United  States  previous 
to  emancipation.  These  had  property  in  their  possession, 
and  spoke  of  themselves  as  owners  of  property,  but  in 
reality  their  property  followed  the  condition  of  the  servi- 
tude of  their  persons,  and  both  persons  and  property  be- 
longed equally  to  the  masters.  The  taille,  furthermore,  as 
a  badge  of  servitude,  was  supposed  to  dishonour  whoever 
was  subject  to  it,  and  degrade  him  not  only  below  the  rank 
of  a  gentleman,  but  of  that  of  a  "  burgher,"  or  inhabitant 
of  a  borough  or  town ;  "  and  no  gentleman,  or  even  any 
burgher,"  writes  Adam  Smith  in  1775,  "  will  submit  to 
this  degradation."  f 

The  hardship  and  injustice  of  the  practical  working  of 
the  taille  may  be  thus  illustrated :  "  In  all  cases  the  nobility 
and  the  clergy  were  exempt  from  its  payment,  as  were  also 
the  holders  of  a  multitude  of  minor  Government  offices, 
which,  however,  did  not  carry  with  them  any  patent  of 

*  The  taille  was  the  equivalent  of  the  English  "  tallage."  But 
the  discretionary  power  of  levying  the  impost  was  taken  away 
from  the  English  crown  and  nobility  by  the  provisions  of  Magna 
Charta. 

t  Repulsive  and  barbarous  as  was  the  taille,  it  is  curious  to 
note  that  the  principle  involved  in  it  still  survives  and  finds  recog 
nition  and  practice  in  States  claiming  a  high  civilization ; 
example,  in  Massachusetts  and  Connecticut,  where  pers 
erty  is  held  to  owe  a  servitude  to  the  State  and  to  be         „  ^ 

taxation  by  it  in  virtue  of  the  citizenship  or  personal  domicile  of  I  (^J^    ^^^ 
its   owner,   although   the   propei'ty   itself   may   be   located   beyond  I     ^^ 
the  territory  and  jurisdiction  of  the  taxing  power. 


is  curious  to 
nd  finds  recog-t  p. 
zation ;   as,  fori  L 
personal  prop-l/^j 
I  be  subject  to  I     ^^'%: 
lal  domicile  of  I  foJ      ^^^ 


120    THE  THEORY  AND  PRACTICE   OF  TAXATION. 

nobility.  These  exempt  classes,  which  in  the  time  of 
Louis  XIV  are  believed  to  have  numbered  some  300,000  out 
of  a  total  estimated  ])opulatiou  of  25,000,000  in  the  king- 
dom, owned  about  one  half  of  the  whole  soil  of  France; 
so  that  the  burden  of  the  taille,  amounting  in  1789  to 
110,000,000  livres  (francs),  fell  exclusively  on  the  rural 
classes ;  especially^  upon  the  agricultural  interests,  which 
it  would  have  been  sound  policy  on  the  part  of  the  state 
to  favour. 

"  But  the  mode  in  which  the  taille  was  levied  still  fur- 
ther illustrates  its  iniquity.  The  Comptroller-General  of 
the  Finances,  in  the  first  instance,  decreed  that  a  certain 
aggregate  sum  was  to  be  raised,  and  then  two  subordinate 
officials  and  the  local  landlords  in  each  province  and  parish 
were  left  to  decide  among  themselves  how  the  prescribed 
amount  was  to  be  exacted  from  the  taxpayers.  The  com- 
bined forces  of  jobbery  and  absolute  authority  rendered 
its  incidence  grossly  unfair,  the  poorer  localities  generally 
paying  the  larger  share,  while  the  richer  ones  escaped 
lightly.  Thus  there  was  brought  about  a  condition  of 
things  in  which  the  most  miserable  sections  of  the  com- 
munity were  made  to  feel  their  inferiority  in  every  relation 
of  life.  They  were  humbled  in  all  their  feelings,  and  they 
could  not  but  loathe  those  whom  birth  or  favouritism  had 
placed  above  them."  * 

Besides  the  taille,  two  other  forms  of  direct  exaction 
were  included  in  the  fiscal  policy  of  France  at  the  period 
under  consideration — namely,  a  so-called  capitation  tax, 
which  was  a  kind  of  graduated  tax  on  capital,  and  from 
the  incidence  of  which  there  was  theoretically  no  exemp- 
tion; and  the  vingtieme  (one  twentieth),  instituted  by  Col- 
bert, which  was  an  income  tax,  and  supposed  to  be  levied 
on  every  class.  Owing,  however,  to  inefficient  administra- 
tion, and  to  the  circumstance  that  the  clergy  occasionally 
bought  exemption  for  themselves  for  a  term  of  years  by  the 
payment  of  a  lump  sum,  the  revenue  derived  from  these 
sources  was  always  much  less  than  it  ought  to  have  been, 
the  privileged  class  to  a  large  extent  evading  assessments. 

The  almost  complete  exemption  of  the  clergy  of  France 

*  The  Financial  Causes  of  the  French  Revolution.  By  Ferdi- 
nand Rothschild, 


INDIRECT  TAXES  AND  GABELLE.  121 

during  the  ante-revolutionary  period  from  taxation,  where- 
by those  who  were  supposed  to  preach  and  practise  charity 
were  so  intent  upon  securing  worldly  vantage  as  to  have 
thrown  nearly  all  their  duties  and  responsibilities  to  the 
state  upon  the  poor,  constitutes  one  of  those  striking  con- 
tradictions which  so  often  confront  us  in  history. 

The  indirect  taxes  were  very  numero«s ;  comprising  the 
customs,  the  octroi,  the  excise,  and  special  taxes  on  wines, 
cards,  tobacco,  salt,  and  on  a  great  variety  of  manufactured, 
products ;  and  in  their  collection  the  arbitrary,  inquisitorial, 
infinitesimal,  and  penalty  system  was  carried  out  to  perfec- 
tion. It  was  this  class  of  taxes  which  undoubtedly  pressed 
most  heavily  on  the  French  poor,  and  from  the  direct  in- 
cidence of  which  the  Church  and  nobility  managed  in  a 
great  degree  to  escape.  Very  curiously,  also,  they  consti- 
tuted an  inducement  to  the  peasantry  to  seem  poorer  than 
perhaps  they  actually  were,  and  to  live  in  low,  thatched 
cottages,  without  floors  or  glass  in  the  windows,  inasmuch 
as  any  improvement  of  their  dwellings  meant  an  increase 
of  their  taxes.  Custom  duties  were  levied,  not  only  at 
frontiers  of  the  kingdom,  but  between  every  province  of 
France.  The  taille  was  exacted  with  military  severity. 
"  Carriages  and  carts  were  stopped  on  the  highway  and 
searched  by  the  tax  collectors ;  no  private  house  was  safe 
from  them  by  day  or  by  night;  and  on  the  slightest  sus- 
picion they  used  the  power  of  arrest  that  was  vested  in 
them.  Prosecutions  for  unpaid  taxes  were  carried  on  with 
the  utmost  rigor.  The  clothes  of  the  poor  were  seized,  and 
even  their  last  measure  of  flour,  and  the  latches  on  their 
doors.  Collectors,  accompanied  by  locksmiths,  forced  open 
doors  and  carried  away  and  sold  furniture  for  one  quarter 
of  its  value,  the  expenses  exceeding  the  amount  of  the 
tax." — Taine. 

The  most  vexatious,  arbitrary,  and  extraordinary  tax  of 
this  period  was  that  imposed  on  salt,  and  known  as  the 
"  gaheUe  "  ;  and  to  one  who  now  acquaints  himself  with 
its  history  and  details  it  must  seem  almost  inconceivable 
that  any  country  claiming  to  be  civilized  ever  could  have 
had  such  an  experience.  In  order  to  effectually  secure  at 
the  outset  the  payment  of  this  tax,  the  right  to  produce 
and  sell  salt  was  vested  exclusively  in  the  state.  By  an 
ordinance  in  1780,  every  person  over  seven  years  of  age  was 
9 


122    THE   THEORY  AND   PRACTICE   OP   TAXATION. 

required  to  purchase,  not  at  conveBience,  but  on  one  stated 
day  of  each  year,  seven  pounds  of  salt,  which  in  a  peasant's 
family  of  four,  according  to  Taine,  entailed  an  expense 
equal  to  the  average  wage  receipts  of  nineteen  days'  work. 
It  was  forbidden  also  to  divert  a  single  ounce  of  the  seven 
obligatory  pounds  to  any  use  but  the  "  pot  and  the  salt 
cellar."  If  any  one  failed  in  these  observances  he  was  fined ; 
and  he  was  also  fined  if  he  purchased  a  smaller  quantity 
than  the  law  prescribed.  To  supplement  the  use  of  salt 
with  water  from  the  ocean,  or  from  saline  springs,  or  to 
water  cattle  in  marshes  or  other  places  containing  salt,  was 
forbidden  under  severe  penalties.  In  certain  departments 
of  France  it  was  also  made  incumbent  on  officials  periodical- 
ly to  destroy,  often  by  defilement,  all  deposits  of  salt  which 
were  formed  naturally.  No  retail  dealing  in  salt  was  per- 
mitted, but  Government  warehouses  were  established,  often 
at  places  at  considerable  distances  from  towns  and  villages, 
where  their  inhabitants  were  compelled  to  make  their 
purchases.  According  to  a  report  made  by  the  comptroller- 
general  in  1787,  the  salt  tax  at  that  time  annually  occa- 
sioned "  four  thousand  domiciliary  seizures,  three  thou- 
sand four  hundred  imprisonments,  and  five  hundred  sen- 
tences to  flogging,  exile,  and  the  galleys."  *. 

But  in  addition  to  the  so-called  national  S3'stem,  which 
imposed  a  great  variety  of  taxes  upon  all  persons  and  prop- 
erty in  France  which  could  not  through  favour  procure 
exemption,  which  exemption  embraced  practically  all  the 
nobility,  clergy,  and  gentry,  there  were  a  great  number  of 
taxes  peculiar  to  separate  estates  or  seigniories,  but  at  the 
same  time  more  or  less  general.  Thus,  all  the  various  op- 
erations involved  in  production  and  consumption  were 
made,  as  far  as  possible,  the  occasion  for  tax  assessments. 
The  tenants,  or  vassals,  were  bound  to  grind  their  corn  at 
the  mill  of  the  seigneur  only;  to  bake  their  bread  exclu- 
sively at  his  ovens;  to  press  their  grapes  and  apples  exclu- 
sively at  his  presses;  and  for  every  such  industrial  conver- 
sion a  toll  or  tithe  was  collected.  One  of  the  memoirs 
touching  the  condition  of  the  Tiers  Etat,  as  the  common 
people  were  called,  published  about  the  time  of  the  meet- 
ing of  the  National  Convention,  expresses  a  hope  that  pos- 

*  Taine,  Ancient  Regime,  pp.  358-362. 


TAXES  ON  TRANSFERS.  123 

terity  may  be  ignorant  that  feudal  tyranny  in  Brittany, 
armed  with  judicial  power,  did  not  blush  at  breaking  hand 
mills  and  selling  annually  to  the  miserable  people  the  privi- 
lege of  bruising  between  two  stones  a  measure  of  buck- 
wheat or  barley. 

Movements  of  persons  or  property  from  one  town  or 
parish  to  another  always  involved  taxation.  If  a  farmer 
or  labourer  moved  from  one  parish  to  another,  it  was  held 
that  he  could  not  separate  himself  from  a  residence  once 
adopted,  but  remained  there  for  taxation,  although  he 
might  actually  and  permanently  have  left  it  and  be  pay- 
ing taxes  in  another  place.  All  movements  of  property  and 
persons  were  discouraged ;  and  it  not  infrequently  happened 
that  there  was  grievous  famine  in  some  departments  of 
France,  and  a  surplus  of  food  at  the  same  time  in  others 
not  very  far  distant,  because  of  the  inability  of  producers 
in  the  latter  to  dispose  of  an  abundant  harvest  for  lack  of 
any  remunerative  market  or  demand.  Every  sale  or  trans- 
fer of  property  also  carried  in  it  a  payment  to  the  seignior, 
or  lord  of  the  manor,  to  the  extent  of  one  eighth  and  some- ' 
times  one  sixth  of  the  entire  equivalent  received  in  consid- 
eration. And  it  is  interesting  here  to  note  that  this  exac- 
tion was  recognised  and  enforced  in  French  Canada  until 
the  abolition  of  seigniorial  tenure,  forty  years  ago.  Arthur 
Young  states  that  at  the  time  he  travelled  in  France, 
1787-'89,  the  very  terms  used  to  designate  the  taxes  im- 
posed on  the  peasantry  were  in  many  instances  untrans- 
latable into  English;  and  from  a  long  list  of  such  terms 
as  he  recorded,  very  few  can  be  found  and  defined  in  any 
ordinary  French  lexicon.*  In  order,  however,  in  some 
degree  to  satisfy  curiosity  as  to  the  nature  of  these  abomina- 
tions, it  may  be  mentioned  that  one  of  the  local  taxes  in 
Brittany,  which  remained  in  force  down  to  1789,  and  was 
known  as  the  " silence  des  grenouilles"  was  a  money  pay- 

*  Of  such  terms  Mr.  Young  mentions  the  following  as  expressive 
of  the  tortures  of  the  peasantry  in  Bretagne  (Brittany),  without 
attempting  to  define  their  exact  meaning:  "  Chevaudies,  qiiintalnes, 
sonle,  sant  de  poison,  baiser  de  mariees,  chansons,  transporte 
d'cpiif  vn  charette,  silence  des  (jrcnouilles,  corvee  a  misericorde, 
milods,  leide,  conponage,  cartelage,  harof/e,  fonafje,  marechanss^, 
hnnvin,  han  d'a6vt,  trovsses,  pelinafje,  civerafje,  taillabilite,  ving- 
tain,  sterlage,  hordelage,  minage,  han  de  vendanges,  droit  d'ac- 
capte,"  etc. 


124    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

ment  in  lieu  of  an  ancient  feudal  obligation  incumbent  on 
the  residents  of  marshy  districts  to  keep  the  frogs  still,  by 
beating  the  waters,  that  the  lady  of  the  seigneur  might  not 
be  disturbed  "  when  she  lies  in  "  ;  while  another  exaction, 
still  more  outrageous,  which  was  not  repealed  until  the 
French  revolutionary  convention  in  179U  swept  it  from 
the  statute  book,  was  a  tax  known  as  cuissage,  or  "  droit 
du  seigneur,"  which  was  paid  to  the  seignior  as  a  substi- 
tute for  his  ancient  and  formerly  undisputed  right  to  the 
possession  before  marriage  of  the  person  of  every  female, 
the  daughter  of  any  of  his  serfs  or  more  dependent  vassals.* 
Another  relic  of  old  feudalism  which  prevailed  in 
France  down  to  the  period  of  the  Revolution,  and  which, 
indirectly  a  tax,  was  most  oppressive  and  impoverishing 
to  the  French  rural  population,  was  an  obligation  termed 
the  corvee,  imposed  upon  them  to  keep  the  main  roads  of 
the  kingdom  in  repair  without  being  remunerated  for  their 
labour  or  for  the  services  of  their  animals.  They  were  thus 
frequently  forced  away  with  their  teams  from  their  fields, 
at  the  demand  of  any  travelling  noble  or  important  per- 
sonage in  either  church  or  state,  and  often  at  a  time  of 
sowing  or  harvesting,  when  they  could  be  least  spared ;  and 
were  occasionally  required  to  travel  long  distances  in  order 
to  reach  their  allotted  work.  While  they  were  thus  com- 
pelled to  keep  the  main  roads  of  the  kingdom  in  repair, 
which  were  generally  of  little  use  to  them,  the  local  or 
parish  roads,  on  which  they  were  dependent  for  their  com- 
munication with  adjacent  towns  or  villages,  were  allowed 
by  the  Government  to  remain  neglected,  f     For  many  3^ears 

*  This  exaction,  the  reality  of  which  has  been  called  in  ques- 
tion, would  seem  to  be  a  necessary  incidence  or  outcome  of  slavery 
or  serfdom,  inasmuch  as  the  condition  of  slavery  implies  no  rights 
on  the  part  of  a  slave  that  the  master  is  bound  to  respect.  Mr. 
Thorokl  Rogers  is  authority  for  the  fact  that  this  droit  (hi  seir/neiir 
was  recognised  under  various  names,  as  jnmhfif/e,  mrrchctn,  and 
mantrif/iiini.  in  France  in  the  thirteenth  and  fifteenth  centuries, 
and  that  fines  in  recognition  and  in  lieu  of  this  ancient  manorial 
right  were  probably  paid  in  England  almost  as  late  as  the  admin- 
istration of  Cromwell. 

t  This  practice  or  institution  of  the  conre  was  undoubtedly 
of  ancient  Eastern  origin,  and  until  recently  existed  in  Egypt; 
a  very  considerable  part  of  the  labour  employed  in  constructing 
the  Suez  Canal  having  been  performed,  in  accordance  with  the 
orders  of  the  then  ruling  Khedive,  under  its  conditions. 


VAUBAN'S  DIXME  ROYALE.  125 

previous  to  the  Eevolution,  the  institution  of  the  corvee 
undoubtedly  meant  to  the  French  peasantry  a  period  every 
year  of  from  twelve  to  fifteen  days  of  forced  labour  for  the 
construction  and  repair  of  roads,  for  which  the  nobility, 
clergy,  and  town  merchants  contributed  not  a  sou,  or  an 
hour  of  work. 

And  now  comes  an  exceedingly  interesting  but  little- 
known  chapter  in  French  history.  There  were  men  of  large 
hearts  and  great  intelligence  in  France  during  the  reign 
of  Louis  XIV  (1643-1715)  who  were  not  only  keenly  ap- 
preciative of  the  oppressions  and  sufferings  of  the  French 
people  by  reason  of  their  horrible  system  of  taxation,  but 
also  of  the  certain  destructive  influence  of  this  system  on 
the  industry,  society,  and  government  of  the  kingdom.* 
Among  these  was  the  celebrated  Marshal  Yauban,  who, 
although  a  soldier  by  profession,  and  holding  one  of  the 
highest  offices  among  the  privileged  nobility,  had  made  a 
study  of  the  misery  of  his  countrymen,  and  had  discerned 
in  a  great  degree  its  cause  and  was  seeking  for  its  remedy. 
The  knowledge  that  his  office  as  Marshal  of  France  gave 
him  of  the  necessity  for  great  expenditures — the  country 
being  almost  always  at  war — and  the  little  hope  he  had 
that  the  king  would  retrench  in  matters  of  splendour  and 
amusement,  left  him  no  other  alternative  but  to  try  to  find 
some  method  by  which  the  burden  of  the  multitudinous 
taxes  imposed  for  defraying  these  expenditures  might  not 
be  enormously  and  unnecessarily  augmented  by  their 
method  of  taking.  He  accordingly  proposed  what  was  in 
effect  a  single  tax — namely,  that  the  king  should  annually 
take  by  one  act  or  payment  a  royal  tithe  of  a  twentieth,  or 
not  more  than  a  tenth  (dixme  royale)  of  all  the  property 
of  each  community,  or  of  each  person  in  the  kingdom ;  and 
that  this  simple  and  sole  tax,  which  would  suffice  for  all, 
and  which  would  pass  directly  into  the  coffers  of  the  king, 
should  be  the  means  by  which  every  other  form  of  tax  or 
exaction  from  the  people,  with  all  its  complicated,  inquisi- 
torial   machinery    for    collection,    should    be    abolished,  f 

*  During  the  eighteenth  century  famine  periodically  decimated 
the  rural  population  of  France,  and  forty  million  acres  went  out 
of  cultivation. 

t  Vauban  proposed  to  maintain  a  tax  on  salt,  customs  duties 
on  imports,  and  registry  duties. 


126    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

About  the  same  time  a  lieutenant-general  of  France — 
one  Boisguillebert,  of  Eouen — took  up  the  investigation  of 
the  same  subject,  and  published  a  really  learned  and  pro- 
found book;  in  which  he  also  proposed  a  new  system  of 
taxation,  which  he  claimed  would  at  once  relieve  the  people 
of  many  taxes,  and  the  state  of  the  necessity  of  great  ex- 
penditure, by  providing  that  the  proceeds  of  every  tax 
should  go  at  once  into  the  treasury  of  the  king,  instead 
of  enriching  first  the  farmers-general,  the  finance  minis- 
ters, and  their  deputies. 

The  system  of  Boisguillebert  was  analogous  to  that 
proposed*  by  Vauban,  with  the  exception  that  the  former 
advocated  the  continuance  of  some  taxes  on  foreign  com- 
merce and  upon  foods,  and  the  latter  desired  especially  to 
abolish  most  of  such  forms  of  taxation. 

Admirable  in  many  respects  as  were  these  proposed 
reforms ;  clearly  based  as  they  undoubtedly  were  upon  what 
are  now  recognised  as  sound  economic  principles,  they  had 
one  great  defect:  they  prescribed  a  course  which,  if  fol- 
lowed, would  have  taken  away  the  means  of  livelihood  of  a 
very  large  number  of  officials.  It  would  have  compelled 
them  to  live  at  their  own  expense,  instead  of  at  the  ex- 
pense of  the  public.  This  was  enough  to  insure  their  fail- 
ure. All  the  people  whose  interests,  fortunes,  and  emolu- 
ments were  threatened  arrayed  themselves  in  opposition; 
for  they  reasoned  truly  that  place,  power,  wealth,  and  social 
position  would  fly  from  their  grasp  if  the  counsels  of  Vau- 
ban were  to  be  followed.  It  is  not  to  be  wondered,  then, 
that  the  king  listened  to  the  advice  of  the  multitude  who 
were  privileged  to  talk  with  him,  rather  than  to  his  one 
clear-headed,  unselfish,  faithful  servitor ;  or  that  when  Mar- 
shal Yauban  presented  him  with  a  book  embodying  and 
explaining  his  fiscal  views  and  system,  he  received  it  with 
a  very  ill  grace.  His  ministers  also,  even  if  they  were  con- 
trarily  disposed,  which  is  not  probable,  could  not  do  other- 
wise than  follow  the  views  of  the  king,  and  from  that 
moment  the  splendid  services  of  the  marshal,  his  military 
genius,  his  virtues,  the  former  affection  the  king  had  had 
for  him — all  were  forgotten.  He  stood  in  the  position  of 
one  courting  the  favour  of  the  people,  and  contemning  and 
weakening  lawful  authority.  The  circulation  of  his  book 
was  forbidden,  and  all  the  copies  which  the  state  could 


BOISGUILLEBERT  AND  DESMARETS.  127 

reach  were  destroyed;  while  the  unhappy  marshal,  unable 
to  survive  the  loss  of  the  king's  favour,  or  stand  up  against 
the  enmities  he  had  created,  soon  died  of  a  broken  heart. 

His  friend  Boisguillebert,  whom  these  events  ought  to 
have  made  prudent,  could  not  restrain  himself,  but  pub- 
lished a  book  vindicating  Vauban,  and  answering  one  of 
the  principal  objections  to  his  system — namely,  the  imprac- 
ticability of  making  any  radical  changes  during  a  great 
war — by  asking  if  it  was  necessary  to  wait  for  peace  before 
abolishing  great  abuses.  This  was  a  more  offensive  con- 
temning of  authority  than  Vauban  had  committed;  and 
Boisguillebert  was  stripped  of  his  functions,  severely  repri- 
manded, and  sent  into  exile.  For  this  he  was  in  a  degree 
recompensed  by  the  acclamations  and  approbation  of  the 
people  wherever  he  went. 

The  system  and  abuses  which  Vauban  and  Boisguille- 
bert endeavoured  to  reform  accordingly  continued;  but 
as  years  went  on,  and  the  misfortunes  of  France  accumu- 
lated and  culminated  in  the  total  defeat  of  her  armies  by 
Marlborough,  the  necessity  of  larger  revenues  to  meet 
larger  expenditures  became  most  urgent;  but  how  to  pro- 
vide them  was  a  problem  which  brought  no  little  embar- 
rassment to  Louis  XIV's  ministers.  At  last  Desmarets, 
who  was  Comptroller-General  of  the  Finances,  proposed  to 
the  Council  of  State,  as  a  way  out  of  their  difficulties,  that 
they  should,  in  addition  to  all  existing  numerous  and 
abominable  taxes,  establish  or  take  on  the  system  of  a  royal 
tenth,  which  had  been  proposed  by  Vauban  and  Boisguille- 
bert as  a  substitute  for  all  other  taxes;  with  all  the  new 
machinery,  officials,  and  valuations  which  such  a  system 
entailed.  The  proposition,  after  a  brief  consideration,  was 
approved  by  the  Council,  and  Desmarets  was  authorized  to 
present  it  to  the  king;  who,  although  long  accustomed  to 
various  and  extravagant  exactions,  is  related  at  first  to 
have  been  greatly  terrified,  and  to  have  exhibited  for  some 
eight  or  ten  days  a  profound  melancholy.  At  the  expira- 
tion of  this  period  he  regained  his  usual  calmness,  and 
gave  the  following  explanation  of  the  cause  of  his  trouble : 
He  said  that  he  had  been  much  tormented  that  the  ex- 
tremity of  his  affairs  required  him  to  take  so  much  of  the 
wealth  of  his  subjects ;  and  that  at  last  he  unbosomed  him- 
self to  the  Pere  Letellier  (his  confessor),  who  after  a  few 


128    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

X^  .  clays  returned  and  reported  that  lie  had  laid  the  matter 
*      ^    before  the  most  eminent  doctors  (theologians)  of  the  Sor- 
Qy/ J  bonne,  by  whom  it  was  decided  ihat  all  the  ivealth  of  his 
^      J.  subjects  -was  the  ]iing''s,  and  that  ivhen  he  took  of  it  he  onlij 

r^jT'  I  took  ivJiat  belonged  to  him.  The  king  added  that  this  de- 
^  ^  cision  had  taken  away  all  his  scruples,  and  had  restored  to 
him  all  the  calm  and  cheerfulness  that  he  had  lost.  After 
'  0^"^  ^^^^  king  had  been  thus  satisfied  by  his  confessor,  no  time 
was  lost  in  establishing  the  tax.  The  effect  upon  the  masses 
was  one  of  great  sadness,  but  there  was  no  revolt.  Many 
of  the  property  holders  in  the  kingdom  endeavoured  to  con- 
vince the  state  officials  that  under  the  former  condition  of 
affairs  they  did  not  enjoy  a  tenth  part  of  their  income,  and 
representatives  of  the  province  of  Languedoc  offered  to 
give  up  its  entire  wealth  to  the  crown,  if  they  might  be 
allowed  to  enjoy,  free  of  every  tax,  the  tenth  part  of  it. 
All  these  remonstrances  and  propositions  were  not  only 
not  listened  to,  but  their  presentation  was  regarded  in  the 
light  of  insubordination. 

The  product  of  this  new  tax  was  not  nearly  so  much  as 
had  been  expected;  and  its  most  marked  result  was,  that 
it  enabled  the  king  to  augment  all  his  infantry  to  the  ex- 
tent of  five  men  per  company. 

In  this  record  of  tax  experience,  which,  commencing  at 
least  as  far  back  as  1667,  under  Louis  XIV,  continued  with 
increasing  popular  oppression  and  misery  until  1789,  we 
find  the  origin  and  the  horrors  of  the  French  Eevolution 
which  began  in  the  latter  year.  During  its  continuance 
six  thousand  persons,  mostly  of  the  ranks  of  the  nol)ility, 
clergy,  and  gentry,  are  said  to  have  perished  under  the 
hands  of  public  executioners  and  upon  the  scaffold.  But 
when  one  calls  to  mind  the  multitudes  that,  for  many  suc- 
cessive generations,  were  starved  and  tortured  out  of  exist- 
ence by  a  system  of  exactions  under  the  name  of  taxation, 
and  for  which  system  the  king,  the  nobility,  the  clergy, 
and  the  influential  classes  of  France  were  responsible,  the 
wonder  is  that  the  masses  of  a  brutalized  and  infuriated 
people  should  have  shown  so  much  clemency  and  restraint 
in  the  hour  of  their  vengeance  and  of  triumph.* 

*  On  this  point  Arthur  Young,  whose  observations  on  the  con- 
dition of  the  French  people  were  made  before  the  great  Revolution 
had   culminated,  or  in   1789,  writes:   "It  is  impossible  to  justify 


THE  FRENCH  REVOLUTION",  129 

It  is  interesting  also  to  note  in  this  connection  that 
against  no  one  class,  when  the  revolutionary  element  be- 
came ascendant  in  France,  was  popular  hatred  more  intense 
than  to  the  farmers-general,  to  whom  the  collection  of 
taxes  in  the  different  provinces  of  the  kingdom  was  farmed 
out  or  contracted.  The  extravagant  expenditure  which,  as 
a  rule,  characterized  their  living,  was  regarded  by  the 
masses  as  all-sufficient  evidence  of  the  enormous  profits 
unjustly  accruing  to  them  from  these  contracts;  and  the 
power  continually  exercised  by  their  agents  to  make  domi- 
ciliary visits,  seize  goods,  inflict  fines,  and  take  other  meas- 
ures of  an  arbitrary,  obnoxious  character  to  enforce  com- 
pliance with  extortions,  all  contributed  to  make  them  ob- 
jects of  execration  by  nearly  the  entire  people.  And  this 
animosity  under  the  revolutionary  government  speedily 
manifested  itself,  by  sending  thirty-two  out  of  the  whole 
number — sixty — of  these  high  officials  to  the  guillotine; 
among  whom  were  undoubtedly  some  honest  and  conscien- 


the  excesses  erf  the  people  on  their  taking  up  arms.  They  were 
certainly  guilty  of  cruelties.  But  is  it  really  the  people  to 
whom  we  are  to  impute  the  whole,  or  to  their  oppressors,  who 
had  kept  them  so  long  in  a  state  of  bondage?  He  who  chooses  to 
be  served  by  slaves,  and  by  ill-treated  slaves,  must  know  that 
he  holds  both  his  property  and  life  by  a  tenure  far  different  from 
those  who  prefer  the  service  of  well-treated  freemen;  and  he  who 
dines  to  the  music  of  groaning  sufferers  must  not,  in  the  moment 
of  insurrection,  complain  that  his  daughters  are  ravished  and  then 
destroyed,  and  that  his  sons'  throats  are  cut.  When  such  evils 
happen  they  surely  are  more  imputable  to  the  tyranny  of  the 
master  than  to  the  cruelty  of  the  servant.  The  analogy  holds  witli 
the  French  peasants.  The  murder  of  a  seigneur,  or  a  chfiteau  in 
flames,  is  recorded  in  every  newspaper.  The  rank  of  the  person 
who  suffers  attracts  notice.  But  where  do  we  find  the  register 
of  that  seigneur's  oppressions  of  his  peasantry,  and  his  exactions 
of  feudal  service  from  those  whose  children  were  dying  around 
them  for  want  of  bread?  Where  do  we  find  the  minutes  that  as- 
signed these  starving  wretches  to  be  fleeced  by  impositions,  and 
a  mockery  of  justice  in  the  seigneural  court?  Who  gives  us  the 
awards  of  the  intendant  and  his  sub-deleguCs,  which  took  off  the 
taxes  from  the  man  of  fashion,  and  laid  them  with  accumulated 
weight  on  the  poor  who  were  so  unfortunate  as  to  be  his  neigh- 
bours? Who  has  dwelt  sufficiently  on  explaining  all  the  ramifica- 
tions of  despotism,  regal,  aristocratical,  and  ecclesiastical,  pervad- 
ing the  whole  mass  of  the  people,  reaching  like  a  circulating  fluid 
the  most  distant  capillary  tubes  of  poverty  and  wretchedness?" — 
Young's  Travels  in  France,  p.  323. 


130    THE   THEORY  AND  PRACTICE  OF  TAXATION. 

tious  financiers  and  otherwise  distinguished  men,  such  as 
Lavoisier,  the  father  of  modern  chemistry. 

One  of  the  great  results  of  the  French  Kevolution,  which 
ought  to  be  duly  weighed  in  reckoning  up  the  good  and 
evil  of  that  mighty  popular  convulsion,  is  that  it  swept 
away  the  feudal  land  laws  of  old  France  and  made  land- 
owners of  several  millions  of  men  who  were  formerly  serfs. 
Fully  one  half  of  the  land  of  France  at  the  present  time 
is  owned  by  small  farmers  or  peasants ;  and  in  their  hands 
has  been  demonstrated  afresh  what  Arthur  Young  called 
the  magic  power  of  property  to  turn  sand  to  gold.  Regions 
which  he  visited  in  1788,  and  found  barren  and  deserted, 
a  hundred  years  later  were  clothed  with  vines  and  gardens 
under  the  tillage  of  peasant  proprietors. 

From  the  foregoing  consideration  of  France  in  the  last 
century,  experiencing  through  the  abuse  of  taxation  the 
most  awful  revolution  in  history,  let  us  turn  to  a  country 
of  our  own  time  and  continent,  and  observe  methods  of 
taxation  yet  surviving  the  rigor  and  barbarism  of  the 
mediaeval  period. 

Taxation  in  Mexico. — Until  recently,  a^d  to  a  great 
extent  at  present,  the  system  of  taxation  operative  in 
Mexico,  the  origin  or  evolution  of  which  may  in  no  small 
part  be  attributed  to  a  sparseness  of  population,  lack  of 
accumulated  wealth  or  capital,  limited  wants,  and  low 
civilization  of  the  masses,  is  especially  worthy  of  notice, 
and  most  instructive  from  the  circumstance  that  nothing 
like  it  exists  in  any  other  country. 

The  duties  levied  on  imports  into  Mexico  are  so  exces- 
sive that  the  average  rate  of  the  Mexican  tariff  is  probably 
greater  than  that  adopted  by  any  other  country  claiming 
to  be  civilized,  with  the  possible  exception  of  Eussia.  The 
favourite  modern  idea  of  making  the  tariff  subserve  two 
purposes — namely,  the  raising  of  revenue  and  the  regula- 
tion of  trade — does  not  appear  as  yet  to  have  greatly  in- 
terested either  the  people  or  Government  of  Mexico,  as 
revenue,  through  the  necessities  of  the  state,  is  the  su- 
preme consideration;  and  for  securing  this  no  other  rule 
seems  to  have  been  recognised  and  followed  in  imposing 
duties  on  imports  than  that  the  higher  the  duty  (or  tax) 
the  greater  will  be  the  accruing  revenue. 

But  with  this  general  characterization  of  the  Mexican 


TAXATION  IN  MEXICO.  131 

tariff  there  comes  in  the  following  other  most  anomalous 
feature:  Thus, in  all  commercial  countries, save  those  which 
permit  the  levy  by  certain  municipalities  of  the  so-called 
octroi  taxes,  when  foreign  articles  or  merchandise  have  once 
satisfied  all  customs  requirements  at  a  port,  or  place  of 
entry,  and  have  been  permitted  to  pass  the  frontier,  they 
are  exempted  from  any  further  taxation  as  imports  so  long 
as  they  retain  such  a  distinctive  character.  In  the  United 
States,  for  example,  it  is  held  that  the  right  to  import  car- 
ries with  it  a  right  to  sell  (i.  e.,  in  the  original  packages) 
without  further  restrictions.  And  the  Supreme  Court  of 
the  United  States  has  decided  that  a  license  tax  imposed 
by  a  State  of  the  Federal  Union,  as  a  prerequisite  to  the 
right  to  sell  an  imported  article,  is  equivalent  to  a  duty 
on  imports,  and  in  violation  of  the  provision  of  the  Federal 
Constitution  which  prohibits  the  States  from  imposing 
import  duties;  and  this  decision  has  been  carefully  recog- 
nised by  the  authorities  of  the  several  States  in  dealing 
with  imported  liquors  under  local  license,  or  other  re- 
strictive laws.* 

But,  in  Mexico,  each  State  of  the  republic  has,  until 
recently,  had  practically  its  own  custom-house  system,  and 
levies  taxes  on  all  goods — domestic  and  foreign — passing 
into  its  territory  for  the  purpose  of  use  or  consumption ; 
and  then,  in  turn,  the  several  towns  of  the  States  again 
assess  all  goods  entering  their  respective  precincts.  The 
rate  of  State  taxation,  being  determined  by  the  several 
State  Legislatures,  varies,  and  varies  continually,  with  each 
State.     In  the  Federal  District — i.  e.,  the  city  of  Mexico 

*  "  An  importer  of  foreign  goods,  in  his  capacity  as  such,  is 
not  the  subject  of  State  taxation,  and  can  not  be  required  to  pay 
a  license  fee  as  importer;  and  his  sales  are  exempt  from  State 
taxation,  because  he  purchases,  by  the  payment  of  the  duty,  a 
right  to  dispose  of  the  merchandise  as  well  as  to  bring  it  into  the 
country;  and  the  tax,  if  it  were  admissible,  would  intercept  the 
import,  as  an  import,  in  the  way  to  become  incorporated  with  the 
genei-al  mass  of  pi'operty,  and  would  deny  it  the  privilege  of  be- 
coming so  incorporated  until  it  should  have  contributed  to  the 
revenue  of  the  State.  But  when  the  importer  has  sold  the  im- 
ported package,  or  has  otherwise  mixed  the  goods  with  the  gen- 
eral property  of  the  State  by  breaking  up  the  package,  a  State 
tax  which  then  finds  the  articles  already  incorporated  with  the 
mass  of  property  by  the  act  of  the  importer  is  not  a  tax  upon 
commerce." — Cooley,  The  Law  of  Taxation,  p.  68. 


132    THE  THEORY  AND  PEACTICE  OP  TAXATION. 

— the  rate  was  recently  two  per  cent  of  the  national  tariff ; 
but  in  the  adjoining  State  of  Hidalgo  it  was  ten  per  cent, 
and  in  others  it  has  been  as  high  as  sixteen  per  cent.  The 
rate  levied  by  the  towns  is  said  to  be  about  nine  per  cent 
of  what  the  State  has  exacted;  but  in  this  there  is  no 
common  rvile.  jSTor  is  this  all.  For  the  transit  of  every 
territorial  boundary  necessitates  inspection,  assessment,  the 
preparation  of  bills  of  charges,  and  permits  for  entry ;  and 
all  these  transactions  and  papers  involve  the  payment  of 
fees,  or  the  purchase  and  affixing  of  stamps.  Thus,  by 
section  377  of  the  tariff  law  of  December,  1884,  it  is  or- 
dained that  "  the  custom  house  shall  give  to  every  individ- 
ual who  makes  any  importation,  upon  the  payment  of 
duties,  a  certificate  of  the  sum  paid,  which  certificate,  on 
being  presented  to  the  administrator  of  the  stamp  office 
in  the  place  of  importation,  shall  be  changed  for  an  equal 
amount  in  custom-house  stamps.  For  this  operation  the 
interested  party  shall  pay,  to  the  administrator  of  whom 
he  received  the  stamps,  two  per  cent  in  money  (coin)  of  the 
total  value  of  the  stamps."  All  imports  into  Mexico  are 
liable,  therefore,  to  these  multiple  assessments;  and  the 
extent  to  which  they  act  as  a  prohibition  on  trade  may  be 
best  illustrated  by  a  practical  example. 

In  1885  an  American  gentleman,  residing  in  the  city 
of  Mexico  as  the  representative  of  certain  New  England 
business  interests,  with  a  view  of  increasing  his  personal 
comfort,  induced  the  landlady  of  the  hotel  where  he  resided 
(who,  although  by  birth  a  Mexican,  was  of  Scotch  par- 
entage) to  order  from  St.  Louis  an  American  cooking  stove, 
with  its  customary  adjuncts  of  pipes,  kettles,  pans,  etc. 
In  due  time  the  stove  arrived;  and  the  following  is  an 
exact  transcript  of  the  bills  contingent,  which  were  ren- 
dered and  paid  upon  its  delivery : 

Original  Invoice: 

1  stove   weight  282  pounds. 

1  box  pipe "  60        " 

1  box  stove  furniture "  86        " 

Total  437  pounds,  or  199.3  kilos. 

Cost  in  St.  Louis,  United  States  currency $26  50 

Excliange  at  20  per  cent 5  30 

Total  $31  80 


MEXICAN  CUSTOMS  DUTIES.  133 

Original  Invoice  (continued): 

Freight  from  St.  Louis  to  city  of  Mexico   (rail), 

at  $3.15  per  100  pounds ,$1.5  75 

Mexican  consular  fee  at  El  Paso 4  85 

Stamps  at  El  Paso 45 

Cartage  and  labour  on  boxes  examined  by  custom 

house  at  El  Paso 50 

Forwarding  commission,  El  Paso 2  00 

Exchange  16|  per  cent  on  $7.64  freight  advanced 

by  Mexican  Central  Railroad 1  25 

$5G  CO 

Import  Duties: 

1  box,  128  kilos   (stove),  iron,  without  brass  or 

copper  ornaments,  at  19  cents  per  kilo $24  42 

1  box,  31.3  kilos,  iron  pipe,  at  24  cents  jjer  kilo.  .       7  51 
1  box  iron  pots,  with  brass  handles,  at  24  cents 
per   kilo 9  48 

$41  41 
Add  4  per  cent  as  per  tariff 1  05 

$43  06 
Package  duty,  50  cents  per  100  kilos 1  00 

$44  00 
Add  5  per  cent  as  per  tariff 2  20 

$46  26 
Add  2  per  cent  municipal  duty 93 

$47  19 
Add  5  per  cent  consumption  duty 2  36 

$49  55 
Despatch  of  goods  at  Buena  Vista  station,  city 

of    Mexico 38 

Stamps  for  permit 50 

$50  43 

$107  03 
Cartage  in  City  of  Mexico 75 

Total   $107  78 

Resume  : 

Original  cost  of  stove,  with  exchange -$31  80 

Freight,  consular  fees,  and  forwarding 24  80 

Import  duties 50  43 

Cartage 75 

Total $107  78 


134    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

Under  such  a  system  articles  of  the  most  common  use 
in  the  United  States  are  from  their  increase  of  price  neces- 
sarily made  articles  of  luxury. 

Again,  the  Mexican  tariff  provides  that  the  effects  of 
immigrants  shall  be  admitted  free.  "  But  this  is  rendered 
practically  a  dead  letter,  from  the  fact  that  the  interior 
duties  are  levied  on  everything  the  immigrant  has  before 
he  gets  settled;  and  these  are  so  heavy  that  immigration 
has  been  greatly  discouraged.  A  carpenter,  or  other  me- 
chanic, who  desires  to  get  employment  in  Mexico,  has 
such  heavy  duties  levied  on  his  tools  on  passing  the  na- 
tional or  State  frontiers  that  few  are  willing  or  able  to 
pay  them.  Hence,  few  American  mechanics  find  their  way 
into  the  country,  unless  in  accordance  with  special  con- 
tract." 

The  existence  in  a  state  of  the  New  World  of  a  system 
of  taxation  so  antagonistic  to  all  modern  ideas,  and  so  de- 
structive of  all  commercial  freedom,  is  certainly  very  curi- 
ous, and  prompts  to  the  following  reflections:  First,  how 
great  were  the  wisdom  and  foresight  of  the  framers  of  the 
Constitution  of  the  United  States  in  providing,  at  the  very 
commencement  of  the  Federal  Union,  that  no  power  to 
tax  in  this  manner,  and  for  their  own  use  or  benefit, 
should  ever  be  permitted  to  the  States  that  might  com- 
pose it  (Article  I,  section  10).  Second,  how  did  such  a 
system  come  to  be  ingrafted  on  Mexico?  for  it  is  not  a  mod- 
ern contrivance.  All  are  agreed  that  it  is  an  old-time 
practice  and  a  legacy  of  Spanish  domination.  But,  fur- 
ther than  this,  may  it  not  be  another  of  those  numerous 
relics  of  European  medifevalism  which,  having  utterly 
disappeared  in  the  countries  of  their  origin,  seem  to  have 
become  embalmed,  as  it  were,  in  what  were  the  old  Span- 
ish provinces  of  America — a  system  filtered  down  through 
Spanish  traditions  from  the  times  when  the  imposition 
of  taxes  and  the  regulation  of  local  trade  were  regarded 
by  cities  and  communities  in  the  light  of  an  affirmation  of 
their  right  to  self-government,  and  as  a  barrier  against 
feudal  interference  and  tyranny;  and  when  the  idea  of 
protecting  industry  through  like  devices  was  not  limited 
as  now,  to  international  commerce,  but  was  made  appli- 
cable to  the  commercial  intercourse  of  cities  and  communi- 
ties of  the  same  country,  and  even  to  separate  trades  or 


INTERNAL  TAXES  OF   MEXICO.  135 

"  guilds  "  of  the  same  city  ?  Whether  such  speculations 
have  any  warrant  in  fact  or  not,  it  is  at  least  certain  that 
we  have  in  the  Mexico  of  to-day  a  perfect  example  of 
what  was  common  in  Europe  in  the  middle  ages;  namely, 
of  protection  to  separate  interests  (through  taxation)  car- 
ried out  to  its  fullest  and  logical  extent,  and  also  of  its 
commercial  and  industrial  consequences. 

So  much  for  the  tariff  system  of  Mexico  and  its  ad- 
juncts. The  "  excise  "  or  "  internal  revenue  "  system  of 
the  country  is  no  less  extraordinary.  It  is  essentially  a 
tax  on  sales,  collected  in  great  part  through  the  agency 
of  stamps,  and  is  a  repetition  of  the  old  "  alcavala  "  tax 
of  Spain,  even  to  the  extent  of  retaining  its  name  slightly 
modified  from  alcavala  to  "  alcabala  "  ;  and  which  Adam 
Smith,  in  his  Wealth  of  Nations,  describes  as  one  of  the 
worst  forms  of  taxation  that  could  be  inflicted  upon  a 
country,  and  as  largely  responsible  for  the  decay  of  Span- 
ish manufactures  and  agriculture.  Thus  a  Federal  statute 
of  Mexico,  enacted  in  1885,  imposed  a  tax  of  "  one  half 
of  one  per  cent  upon  the  value  in  excess  of  twenty  dollars 
of  transactions  of  buying  or  selling  of  every  kind  of  mer- 
chandise, whether  at  wholesale  or  retail,  in  whatever  place 
throughout  the  whole  republic."  Also,  one  half  of  one  per 
cent  "  on  all  sales  and  resales  of  country  or  city  property ; 
upon  all  exchanges  of  movable  or  immovable  property; 
on  mortgages,  transfers,  or  gifts,  collateral  or  bequeathed 
inheritances;  on  bonds,  rents  of  farms,  when  the  rent  ex- 
ceeds two  thousand  dollars  annually ;  and  on  all  contracts 
with  the  Federal,  State,  or  municipal  governments." 
Every  inhabitant  of  the  republic  who  sells  goods  to  the 
value  of  over  twenty  dollars  must  give  to  the  buyer  "  an 
invoice,  note,  or  other  document  accrediting  the  purchase," 
and  affix  to  the  same,  and  cancel,  a  stamp  corresponding  to 
the  value  of  the  sale.  Sales  at  retail  are  exempt  from  this 
tax ;  and  retail  sales  are  defined  to  be  "  sales  made  with 
a  single  buyer,  whose  value  does  not  exceed  twenty  dollars. 
The  union,  in  a  single  invoice,  of  various  parcels,  one  of 
which  does  not  amount  to  twenty  dollars,  but  which  in  the 
aggregate  exceed  that  quantity,"  remains  subject  to  the 
tax.  Eetail  sales  in  the  public  markets,  or  by  ambulatory 
sellers,  or  licensed  establishments  whose  capital  does  not 
exceed  three  hundred  dollars,  are  also  exempt.     Tickets 


136    THE  THEORY  AND  PRACTICE   OP  TAXATION. 

of  all  descriptions — ;railroad,  theatre,  etc. — must  have  a 
stamp,  as  must  each  page  of  the  reports  of  meetings,  each 
leaf  of  a  merchant's  ledger,  day  or  cash  hook,  and  every 
cigar  sold  singly,  which  must  be  delivered  to  the  buyer 
in  a  stamped  wrapper.  Sales  of  imported  spirits  pay  eight 
per  cent  on  the  duties  levied  on  their  importation,  and 
a  half  of  one  per  cent  in  addition  when  retailed.  Domestic 
spirits  pay  three  per  cent  when  sold  by  producers  or 
dealers  at  wholesale,  and  a  half  of  one  per  cent  additional 
when  sold  at  retail.  Gross  receipts  of  city  railroads  pay 
four  per  cent ;  public  amusements,  two  per  cent  upon  the 
amount  paid  for  entrance;  playing  cards,  fifty  per  cent — 
paid  in  stamps — on  the  retail  price;  and  manufactured 
tobacco  a  variety  of  taxes,  proportioned  to  quality  and 
value.  Mercantile  drafts  are  taxed  at  a  dollar  on  every 
hundred. 

Farms,  haciendas,  and  town  estates  are  required  to  be 
taxed  at  the  rate  of  three  dollars  per  each  thousand  dollars 
of  the  valuation,  but  such  is  the  influence  of  the  landowners 
that  the  valuation  is  almost  nominal.  In  Vera  Cruz  the 
rate  is  reported  at  about  two  mills  on  the  dollar  for  the 
most  productive  portions  of  country  estates;  while  in  the 
Pacific  State  of  Colima  the  rate  is  said  to  be  one  and  a 
half  per  cent.  Land  and  buildings  not  actually  produc- 
ing income  are  exempt  from  taxation,  notwithstanding 
they  may  be  continually  enhancing  in  value.  This  sys- 
tem of  exempting  unoccupied  realty  from  taxation  also 
prevails  in  Portugal;  and  the  Mexican  usage  was  probably 
derived  from  that  country,  where  the  theory  in  justifica- 
tion of  the  practice  is,  that  the  use  of  a  thing  defines  its 
measure  of  value,  and  that  to  tax  unused  property  is  con- 
fiscation. 

A  recent  Mexican  statute  for  the  taxation  of  land  con- 
tains forty-seven  different  sections,  each  providing  the 
ways  and  means  of  enforcing  the  tax  and  prescribing  penal- 
ties for  its  infraction.  In  the  towns  and  cities  of  Mexico 
this  system  of  infinitesimal  taxation  is  indefinitely  re- 
peated, the  towns  acting  as  collectors  of  revenue  for  the 
Federal  and  State  governments,  as  well  as  for  their  own 
municipal  requirements.  All  industries  pay  a  monthly 
fee :  As  tanneries,  fifty  cents ;  soap  factories,  one  dollar. 
So  also  all  shops  for  the  sale  of  goods  pay  according  to 


HINDRANCES  TO  TRADE.  I37 

their  class,  from  a  few  dollars  down  to  a  few  cents  per 
month.  Each  beef  animal,  on  leaving  a  town,  pays  fifty 
cents;  each  fat  pig,  twenty-five  cents;  each  sheep,  twelve 
cents;  each  load  of  corn,  fruit,  vegetables,  or  charcoal, 
six  cents  (as  a  supposed  road  tax),  and  so  on;  and,  on 
entering  another  town,  all  these  exactions  are  repeated. 
A  miller,  in  Mexico,  it  is  said,  is  obliged  to  pay  thirty- 
two  separate  taxes  on  his  wheat  before  he  can  get  it  from 
the  field  and  offer  it,  in  the  form  of  flour,  on  the  market 
for  consumption.  As  a  matter  of  necessity,  furthermore, 
every  centre  of  population — small  and  big,  city,  town,  or 
hamlet — swarms  with  petty  officials,  who  are  paid  to  see 
that  not  an  item  of  agricultural  produce,  of  manufactured 
goods,  or  an  operation  of  trade  or  commerce  or  even  a 
social  event,  like  a  fandango,  a  christening,  a  marriage, 
or  a  funeral,  escapes  the  payment  of  tribute. 

In  fact,  trade  has  been  so  hampered  by  this  system 
of  taxation  that  one  can  readily  understand  and  accept  the 
assertion  that  has  been  made,  that  people  with  capital  in 
Mexico  really  dread  to  enter  into  business,  and  prefer  to 
hoard  their  wealth,  or  restrict  their  investments  to  land 
(which,  as  before  pointed  out,  is  practically  exempt  from 
taxation),  rather  than  subject  themselves  to  the  never- 
ending  inquisitions  and  annoyances  which  are  attendant 
upon  almost  every  active  employment  of  persons  and  capi- 
tal, even  were  all  other  conditions  favourable.  Mexico, 
from  the  influence  of  this  system  of  taxation  alone,  must, 
therefore,  remain  poor  and  undeveloped ;  and  no  argu- 
ment to  the  contrary  can  in  any  degree  weaken  this  asser- 
tion. Doubtless  there  are  many  intelligent  people  in 
Mexico  who  recognise  the  gravity  of  the  situation,  and  are 
most  anxious  that  something  should  be  done  in  the  way 
of  reform.  But  what  can  be  done  ?  If  autocratic  powers 
were  to  be  given  to  a  trained  financier,  thoroughly  versed  in 
all  the  principles  of  taxation  and  of  economic  sciences,  and 
conversant  with  the  results  of  actual  experience,  the  prob- 
lem of  making  things  speedily  and  radically  better  in 
this  department  of  the  Mexican  state  is  so  difficult  that 
he  might  well  shrink  from  grappling  with  it. 

In  the  first  place,  the  great  mass  of  the  Mexican  people 
have  little  or  no  visible  tangible  property  which  is  capable 
of  direct  assessment. 
10 


138    THE  THEORY  AND  PRACTICE  OF   TAXATION 

Again,  in  any  permanent  system  of  taxation,  taxes  in 
every  country  or  community,  in  common  with  all  the  ele- 
ments of  the  cost  of  production  and  subsistence — wages, 
profits,  interest,  depreciation,  and  materials — must  be  sub- 
stantially drawn  from  each  year's  product.  Now,  the 
annual  product  of  Mexico  is  comparatively  very  small. 
For  example,  the  annual  product  of  one  of  the  least  devel- 
oped States  of  the  Federal  Union — South  Carolina — was 
in  1888  absolutely  two  and  a  half  times — or,  proportionally 
to  area,  twenty-five  times — as  valuable  as  the  then  an- 
nual product  of  the  entire  northern  half  of  Mexico;  and 
the  Argentine  Eepublic  of  South  America,  with  only  one 
third  the  population  of  Mexico,  has  a  revenue  twenty  per 
cent  greater,  and  double  the  amount  of  foreign  commerce. 
Product  being  small,  consumption  must  of  necessity  be  also 
small.  "  The  average  cost  of  living  (food  and  drink) 
to  a  labouring  man  in  the  city  of  Mexico  is  about  twenty- 
five  cents  per  day;  in  the  country,  from  twelve  and  a  half 
to  eighteen  cents.  The  average  annual  cost  of  a  man's 
dress  is  probably  not  over  five  dollars;  that  of  a  woman, 
double  that  sum,  with  an  undetermined  margin  for  gew- 
gaws and  cheap  jewelry."  Mr.  Lambert,  United  States 
consul  at  San  Bias,  reported  under  date  of  May,  1884: 
"  The  average  labourer  and  mechanic  of  this  country  may 
be  fortunate  enough,  if  luck  be  not  too  uncharitable  toward 
him,  to  get  a  suit  of  tanned  goatskin,  costing  him  about  six 
dollars,  which  will  last  him  as  many  years."  Of  house- 
hold goods  the  mass  of  the  Mexican  people  are  almost 
destitute.  A  few  untanned  hides  are  used  for  beds,  and 
dressed  goat  or  sheep  skins  serve  for  mattress  and  cov- 
ering. 

The  food  of  the  masses  consists  mainly  of  agricultural 
products — corn  (tortillas),  beans  (frijoles),  and  fruits — 
which  are  for  the  most  part  the  direct  results  of  the  labour 
of  the  consumer,  and  not  obtained  through  any  mechanism 
of  purchase  or  exchange. 

Persons  conversant  with  the  foreign  commerce  of  Mex- 
ico are  also  of  the  opinion  that  not  more  than  five  per  cent 
of  its  population  buy  at  the  present  time  any  imported 
article  whatever,  and  that  for  all  purposes  of  trade  in 
American  or  European  manufactures  the  consuming  popu- 
lation is  not  much  in  excess  of  half  a  million.    Revenue  in 


LAND  OWNERSHIP  IN  MEXICO.  139 

Mexico  from  any  tariff  on  imports  must  therefore  be  lim- 
ited, and  this  limitation  is  rendered  much  greater  than  it 
need  be  by  absurdly  high  duties,  which  (as  notably  is  the 
case  of  cheap  cotton  fabrics)  enrich  the  smuggler  and  a  few 
mill  proprietors  to  the  great  detriment  of  the  national  ex- 
chequer. 

It  is  clear,  therefore,  that  the  basis  available  to  the 
Government  for  obtaining  revenue  through  the  taxation 
of  articles  of  domestic  consumption,  either  in  the  pro- 
cesses of  production  or  through  the  machinery  of  dis- 
tribution, is  of  necessity  very  narrow ;  and  that  if  the  state 
is  to  get  anything,  either  directly  or  indirectly,  from  this 
source,  there  would  really  seem  to  be  hardly  any  method 
open  to  it  other  than  that  of  an  infinitesimal,  inquisitorial 
system  of  assessment  and  obstruction  akin  to  what  is  al- 
ready in  existence. 

But  the  greatest  obstacle  in  the  way  of  tax  reform  in 
Mexico  is  to  be  found  in  the  fact  that  a  comparatively  few 
people — not  six  thousand  out  of  a  possible  ten  million — 
own  all  the  land  and  constitute  in  the  main  the  govern- 
ing class  of  the  country,  and  the  influence  of  this  class  has 
thus  far  been  sufficiently  potent  practically  to  exempt  land 
from  taxation.  So  long  as  this  condition  of  things  pre- 
vails it  is  difficult  to  see  how  there  is  ever  going  to  be  a 
middle  class  (as  there  is  none  now  worthy  of  mention) 
occupying  a  position  intermediate  between  the  rich  and 
a  vast  ignorant  lower  class  that  take  no  interest  in  public 
affairs,  and  is  only  kept  from  turbulence  through  mili- 
tary restraint.  Such  a  class  in  every  truly  civilized  and 
progressive  country  is  numerically  the  largest,  and  com- 
prising the  great  body  of  producers,  consumers,  and  tax- 
payers, is  the  one  most  interested  in  the  promotion  and 
maintenance  of  good  government.  A  tax  policy,  however, 
which  would  compel  the  landowners  to  cut  up  and  sell 
their  immense  holdings,  especially  if  they  are  unwilling 
to  develop  them,  would  be  the  first  step  toward  the  creation 
of  such  a  middle  class.  But  it  is  not  unlikely  that  Mexico 
would  have  to  go  through  one  more  revolution,  worse 
than  any  she  has  yet  experienced,  before  any  such  result 
could  be  accomplished.  At  present,  furthermore,  there  is 
no  evidence  that  the  mass  of  the  Mexican  people,  who 
would  be  most  benefited  by  any  wise  scheme  for  the  par- 


14:0    THE   THEORY  AND   PRACTICE  OP  TAXATION. 

tition  of  the  great  estates  and  for  tax  reform,  feel  any 
interest  whatever  in  the  matter  or  would  vigorously  sup- 
port any  leader  of  the  upper  class  who  might  desire  to 
take  the  initiative  in  promoting  such  changes;  and  herein 
is  the  greatest  discouragement  to  every  one  who  wishes 
well  for  the  country. 

In  1892,  the  present  enlightened  President  of  the 
Eepublic  of  Mexico,  Porfirio  Diaz,  fully  recognising  the 
great  obstruction  to  trade  and  commerce  which  the  com- 
plicated system  of  internal  taxation  entailed  upon  the 
country,  created  a  commission  to  report  what  was  neces- 
sary to  institute  a  better  fiscal  system.  As  a  result  of 
the  labours  of  this  commission  the  Federal  Constitu- 
tion was  amended  so  as  to  provide  for  the  total  repeal 
of  the  internal  taxes  on  trade,  the  alcavalas,  and  this 
radical  change  was  accomplished  July  1,  1896.  The  States, 
deprived  by  this  measure  of  their  income  from  merchan- 
dise coming  into  or  passing  through  their  territory,  modi- 
fied their  tax  systems,  substituting  for  the  abolished  duties 
direct  taxes.  In  January,  1898,  the  Secretary  of  the 
Treasury,  Jose  Ives  Limantour,  reviewing  the  financial 
operations  of  the  year,  stated  that  the  receipts  from  these 
direct  taxes  had  been  very  satisfactory,  considering  the 
difficulties  generally  encountered  in  the  collection  of  a  new 
tax.  As  the  contributions  from  the  States  to  the  Federal 
Treasury  had  been  intimately  connected  with  the  alca- 
valas, it  was  expected  some  heavy  decrease  would  occur; 
but  this  deficiency  amounted  to  less  than  thirty  thousand 
dollars  in  the  first  year,  and  the  prospect  of  further  deficits 
was  not  encouraged.  The  abolition  of  the  vexatious  alca- 
ralas  has  resulted  in  a  greater  commercial  activity. 


CHAPTER  VI. 

TAXATION    IN    EGYPT    AND   BRAZIL. 

Taxation  in  Egypt. — Herodotus,  the  Father  of  His- 
tory, in  writing  more  than  two  thousand  years  ago  ahout 
Egypt,  characterized  it  as  a  land  of  wonders,  "  contain- 
ing more  marvellous  things  than  any  other  country,"  and 
in  this  opinion  the  judgment  of  succeeding  ages,  finding 
an  all-sufficient  warrant  in  primeval,  stupendous,  and  mys- 
terious monuments,  has  been  compelled,  as  it  were,  fully 
to  acquiesce.  At  this  latter  day,  however,  there  has  been 
added  to  Egyptian  history  what  may  be  rightfully  termed 
another  wonder,  namely,  the  most  interesting  and  instruc- 
tive experience  in  taxation  in  the  world's  history.  In- 
teresting and  instructive  because  it  affords  striking  and 
almost  unprecedented  illustrations'  of  the  results  contin- 
gent on  an  arbitrary  and  unintelligent  treatment  of  a 
heavy  annual  requirement  of  revenue  for  the  support  of  a 
state,  as  contrasted  with  the  results  which  have  been  the 
sequence  of  a  wise  and  practical  policy  for  a  like  purpose 
in  the  same  country  and  under  similar  conditions. 

Previous  to  the  military  occupation  of  Egypt  by  the 
British  forces  in  1882,  consequent  upon  the  suppression 
of  the  rebellion  under  the  lead  of  Arabi  Pasha,  the  condi- 
tion of  the  country  was  wretched  almost  beyond  concep- 
tion. Its  revenue  system,  in  accordance  with  Asiatic  ideas, 
comprehended  nearly  every  form  of  iniquitous  extortion. 
The  principal  source  of  revenue  was  essentially  in  the 
nature  of  a  land  tax ;  and  for  the  dusky  fellah,  who  repre- 
sents the  bulk  of  the  Egyptian  population,  and  who,  with 
a  grimy  white  shirt  girded  about  his  loins,  ploughs,  sows, 
and  reaps  to-day  as  his  forefathers  have  done  before  him 
for  thousands  and  thousands  of  years,  this  tax  meant  that 
his  houses,  his  cattle,  and  his  lands  "  were  but  so  much 
food  placed  before  the  lips  of  our  lord  (the  Khedive)  that 
he  might  eat  thereof  and  have  his  fill." 

141 


142    THE  THEORY  AND   PRACTICE  OF   TAXATION. 

"  The  seed  was  often  barely  sown  for  the  coming  crop 
before  the  tax-gatherer  appeared  with  the  usurer  as  his 
familiar  spirit  at  his  heels,  claiming  not  only  heavy  tithes 
of  the  treasury,  but  the  many  tithes  of  those  tithes  which 
never  reached  the  treasury,  waylaid  on  the  road  along  the 
steep  ascending  gradients  of  a  predatory  hierarchy.  For 
what  purposes  or  to  what  amount  he  could  be  mulcted  the 
fellah  had  no  means  of  knowing.  The  only  record  he 
kept  was  the  number  of  strokes  from  the  koorbash  which 
had  wrung  from  him  his  last  piastre.  The  only  certainty 
he  acquired  by  long  and  bitter  experience  was  that,  let  his 
harvest  be  good  or  bad,  only  so  much  would  be  left  to  him  as 
would  barely  suffice  to  keep  body  and  soul  together.  Every 
year  brought  fresh  imposts,  and  every  new  tax  became  in 
the  hands  of  a  corrupt  administration  a  fresh  pretext  for 
unlawful  exactions.  To  satisfy  them  the  land  was  made 
to  yield  more  frequent  and  more  valuable  but  also  more 
exhausting  crops,  until  the  soil  itself  caught  the  contagion 
of  universal  impoverishment.  Still,  the  arrears  of  taxa- 
tion grew,  and  with  them  arrears  of  private  indebtedness," 
until  at  last  whole  villages  not  infrequently  petitioned 
the  pasha  "  to  accept  the  fee  simple  of  their  lands  on 
condition  merely  that  they  should  be  allowed  to  rent  them 
from  him  at  an  annual  rental  greater  than  the  land  tax 
itself,  but  still  vastly  less  than  the  total  amount  of  illegiti- 
mate imposts  grafted  on  to  the  land  tax." 

Extortion  for  the  purpose  of  obtaining  revenue  for  the 
state,  and  plunder  for  the  officials  intrusted  with  its  collec- 
tion, was  not  the  only  form  of  oppression  to  which  the 
miserable  Egyptian  peasantry  were  subjected.  By  an  an- 
cient Asiatic  institution  called  the  corvee,  the  fellah  was 
liable  at  any  moment  to  be  seized  and  dragged  perhaps 
off  to  some  distant  part  of  the  country  to  work  under  con- 
stant dread  of  the  taskmaster's  whip  at  any  task  suggested 
by  the  caprice  of  the  Khedive  or  some  powerful  pasha; 
and  it  was  under  this  system  of  compulsory,  unpaid,  severe, 
unfed  labour,  and  with  great  attendant  sacrifice  of  the 
lives  of  his  subjects,  that  the  then  Khedive,  Ismail  Pasha, 
mainly  built  the  Suez  Canal.  In  addition  there  was  a 
system  of  "  military  conscription  invested  with  the  terrors 
of  the  press-gang;  there  was  the  water  supply  for  irriga- 
tion, generally  inadequate  and  often  dependent  upon  the 


REBELLIONS  IN  EGYPT.  143 

caprice  of  some  local  magistrate  or  corrupt  official;  there 
was  the  greed  of  unjust  judges ;  there  was  the  whole  hungry 
bureaucracy,  feeding  upon  those  beneath  it  in  order  that  it 
might  in  turn  feed  those  above  it." 

Such,  then,  was  the  life  that  the  fellah  "  lived  in  the 
days  of  the  oppression  ";  not  in  the  dim  twilight  of  the 
past,  but  less  than  twenty  years  ago;  not  in  remotely  hid- 
den corners  of  Egypt,  but  throughout  its  entire  length  and 
breadth. 

In  1879  the  exactions  in  Egypt,  nominally  for  revenue, 
had  become  so  oppressive,  that  the  population  refused  to 
pay  them,  and,  rising  in  revolt,  drove  Ismail  Pasha  from 
power  and  installed  his  son,  Mohammed  Tewfik,  in  his 
place.  The  new  pasha  found  the  finances  of  the  country 
in  such  confusion  that  he  was  obliged  to  invoke  the  aid 
of  European  Governments  in  order  to  obtain  the  means 
necessary  to  pay  the  interest  on  the  public  debt;  and  in 
this  way  the  British  and  French  Governments,  as  repre- 
senting a  large  majority  of  the  creditors,  or  holders  of  the 
debt,  were  practically  given  control  of  all  the  Egyptian 
sources  of  revenue.  This  condition  of  affairs  was,  how- 
ever, in  turn  so  repugnant  to  the  people  that  in  the  spring 
of  1882  a  revolt  broke  out,  headed  by  Arabi  Pasha,  the  then 
Minister  of  War,  which,  with  a  popular  cry  of  "  Egypt  for 
Egyptians  !  "  seemed  for  a  time  likely  to  be  successful.  But 
with  the  utter  defeat  of  Arabi  at  the  battle  of  Tel-el-Kebir, 
in  September,  1882,  the  rebellion  collapsed;  Tewfik  Pasha 
was  restored  to  power,  while  the  British  forces,  for  the 
purpose  mainly  of  maintaining  the  situation  and  insuring 
peace,  practically  retained  possession  of  the  country.  It 
was  under  such  circumstances  that  a  reconstruction  of  the 
antiquated,  arbitrary,  and  unequal  Egyptian  system  of  col- 
lecting revenue  was  entered  upon  as  an  immediate  and 
imperative  necessity  for  the  establishment  of  a  new  and 
better  national  fiscal  policy,  and  the  attainment  thereby 
of  some  degree  of  national  prosperity.* 

*  Notwithstanding  the  adverse  criticism  that  has  been  made  on 
the  action  and  policy  of  Great  Britain,  under  the  then  existing 
circumstances,  subsequent  experience  has  proved  that  it  saved 
Egypt  from  barbarism  and  anarchy,  and  all  the  nations  interested 
in  that  country  "  from  incalculable  losses  in  blood  and  treasure, 
to  say  nothing  of  the  deep  dishonour  which  these  losses,  foreseen 


14:4:    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

The  career  of  Ismail  Pasha,  who  as  Khedive  ruled  over 
Egypt  from  1863  to  1879,  was  a  remarkable  one.  He  was 
"  as  fine  a  type  of  the  spendthrift  as  can  well  be  found, 
whether  in  history  or  fiction.  No  equally  reckless  prodigal 
ever  possessed  equally  unlimited  control  of  equally  vast 
resources.  He  came  to  the  throne  at  a  moment  when  there 
seemed  to  be  no  limit  to  the  potential  wealth  of  Egypt. 
The  whole  land  was  his,  to  do  what  he  liked  with  it. 
The  world  was  ready  to  lend  money  to  develop  it."  The 
results  of  his  government  may  be  rightfully  characterized 
from  almost  every  point  of  view  as  appalling.  When  he 
commenced  to  rule  in  1863  "the  debt  of  Egypt  was  a 
little  over  £3,000,000  sterling  ($15,000,000).  The  an- 
nual revenue  of  the  country  was  amply  sufficient  to  meet 
all  needful  expenditure.  Yet  at  the  end  of  1876  the  debt 
had  risen  to  £89,000,000  ($445,000,000).  A  country  of 
six  million  inhabitants  and  only  five  million  acres  of  cul- 
tivated land  had  added  to  its  burdens  at  the  rate  of  £7,- 
000,000  ($35,000,000)  a  year.  At  the  same  time  the  taxa- 
tion of  land  had  been  increased  by  something  like  fifty 
per  cent.  There  is  nothing  in  the  fiscal  history  of  any 
country,  from  the  remotest  ages  to  the  present  time,  equal 
to  this  carnival  of  extravagance  and  oppression." 

The  revenue  annually  collected  under  Ismail  Pasha  is 
probably  not  accurately  known,  and  has  been  reported  as 
high  as  £15,000,000  "($75,000,000),  from  an  estimated 
population  in  1872  of  5,203,000.  But,  whatever  the 
amount,  it  is  certain  that  a  very  considerable  portion  of 
what  was  wrung  from  the  miserable  peasantry  never  found 
its  way  into  any  official  ledger,  or  reached  the  national 
treasury.  Of  a  great  loan  of  £32,000,000  effected  by  the 
Khedive  in  1873,  only  £20,700,000  reached  the  Egyptian 
treasury.  The  total  amount  sunk  by  the  Government  in 
the  Suez  Canal  is  estimated  at  £16,075,000  ($80,375,000). 
Yet  Egypt  has  no  share  in  the  vast  profits  of  the  under- 
taking. It  was  not,  however,  the  amount  of  taxation, 
crushing  as  it  was  in  many  cases,  which  worked  the  great- 
est mischief.     "  It  was,  above  all,  the  cruel  and  arbitrary 

and  yet  unhindered,  would  have  brought  on  civilized  mankind. 
The  Arabist  movement  possessed  great  destructive  force,  but  it 
had  not  within  itself  the  elements  necessary  for  the  construction 
of  anything  enduring." — England  in  Egypt,  Sir  Alfred  Milncr. 


REFORM  OF  EGYPT'S  TAXES.        145 

manner  in  which  the  taxes  were  collected.  The  fellah  was 
seldom  sure  of  the  amount  that  would  be  demanded  of 
him.  He  was  never  sure  of  the  moment  when  the  demand 
would  be  made.  The  moment  might,  as  likely  as  not, 
be  the  very  one  in  which  he  was  least  able  to  pay.  Called 
upon  to  find  ready  money  while  his  crops  were  still  in 
the  ground,  he  was  simply  driven  into  the  arms  of  the 
money-lender.  His  choice  lay  between  so  many  blows  of 
the  l-oorhash  and  the  acceptance  of  the  usurer's  terms, 
however  onerous.  Under  these  circumstances  money  was 
borrowed  at  as  much  as  sixty  per  cent  per  annum.  Worse 
than  that,  it  was  often  obtained  by  the  sale  of  the  growing 
crops,  which  were  estimated  for  the  purpose  of  the  ad- 
vance at  half  or  less  than  half  their  value.  This  state 
of  things  was  bad  enough,  and  it  was  pretty  general,  but 
the  ruin  of  the  cultivator  was  consummated  in  many  in- 
stances by  positive  collusion  with  the  usurer  on  the  hint 
of  corrupt  officials.  The  latter  would  demand  the  pay- 
ment of  taxes  by  the  peasant,  who  was  already  in  debt,  at 
the  very  time  when  the  interest  on  his  debt  was  due.  If 
he  had  any  cash  at  all  the  authorities  were  bound  to  get  it. 
When  the  usurer  came  after  them,  there  was  nothing  left 
to  the  fellah  but  to  surrender  his  land  and  cattle,  or  re- 
new his  bond  on  still  more  ruinous  terms.  He  was,  in 
fact,  entirely  at  the  mercy  of  the  lender." 

That  some  betterment  of  such  a  condition  of  affairs 
was  imperative  if  civilization  was  to  be  maintained  and 
the  substantial  dissolution  of  Egyptian  society  prevented, 
seemed  evident,  and  to  effect  it  most  rationally  and  speed- 
ily an  experiment  was  instituted  that,  as  respects  its  nature 
and  results,  finds  no  parallel  in  the  world's  history.  This 
in  brief  was  the  creation  of  a  fiscal  commission,  by  Sir 
Evelyn  Baring,  then  British  agent  and  consul  general  in 
Egypt  (but  now  Lord  Cromer,  minister  plenipotentiary), 
the  members  of  which  were  selected  solely  by  reason  of 
their  recognised  qualifications  for  the  work  in  hand  and 
invested  with  almost  autocratic  powers.  To  this  commis- 
sion was  intrusted  the  task  of  examining  and  reconstruct- 
ing a  revenue  system  of  long  duration  and  fortified  by  the 
precedents,  customs,  and  prejudices  of  an  entire  country, 
with  a  not  inconsiderable  population.  The  commission 
when  organized  in  1884— "85  entered  upon  its  work  under 


146     THE   THEORY  AND   PRACTICE  OF  TAXATION. 

exceedingly  unfavourable  circumstances.  The  financial 
pressure  was  most  acute.  The  magnitude  of  the  national 
debt  was  apparently  overwhelming;  and  the  prices  of  the 
leading  agricultural  staples  of  the  country,  depressed  in 
an  extraordinary  degree  by  world-wide  competition,  con- 
sequent upon  improved  conditions  of  production  and 
transportation,  seemed  to  preclude  all  possibility  of  obtain- 
ing any  increased  revenues  from  the  masses  by  a  continu- 
ance of  the  old,  or  even  by  any  new  methods  of  extor- 
tion. The  first  step  taken  was  to  abolish  as  rapidly  and 
as  far  as  possible  all  unnecessary  and  unproductive  ex- 
penditures; and  for  this  there  was  large  opportunity.  A 
diminution  was  made  in  the  pension  list,  and  in  the  num- 
ber of  superfluous  and  highly  paid  officials.  By  the  con- 
current action  of  the  great  powers  of  Europe  the  rate  of 
interest  on  the  funded  debt  of  Egypt  was  also  somewhat 
reduced. 

The  next  important  measure  that  claimed  the  attention 
of  the  commission  was  the  grievance  of  the  corvee,  or  sys- 
tem of  enforced  labour  on  the  part  of  the  peasantry  on  the 
public  works ;  which,  if  entitled  to  be  called  taxation,  was 
taxation  of  the  worst  and  most  wasteful  kind,  entailing 
sacrifices  upon  the  people  out  of  all  proportion  to  the 
money  which  it  saved  to  the  state.  It  was  not,  however, 
found  practical  at  the  outset  to  abolish  it  altogether.  The 
old  practice  by  which  the  fellahs  might  be  dragged  away 
from  their  villages  at  any  moment  for  anv  purpose,  public 
or  private,  upon  which  the  Khedive  might  choose  to  em- 
ploy them,  was  at  once  totally  abrogated.  On  the  other 
hand,  the  agriculture  of  Egypt,  the  main  source  of  support 
of  her  people,  depends  upon  the  water  of  the  Nile,  dis- 
tributed through  irrigating  ditches  or  canals ;  and  in 
order  that  these  should  fulfil  their  purpose,  it  is  neces- 
sary to  keep  them  clear  of  the  mud  which  the  Nile  at  the 
period  of  its  annual  overflow  brings  down  in  large  quan- 
tities;:  and  to  effect  this,  no  other  labour  than  that  of  the 
fellahs  is  available.  Finding  that  this  indispensable  work 
could  be  done  bv  contract  and  paid  labour,  for  about 
£400.000  ($2,000,000)  per  annum,  the  commission  ap- 
propriated, from  the  funds  made  available  from  loans  and 
the  reduced  expenses  of  the  Government,  the  sum  of 
£250,000,  to  be  paid  annually  as  compensation  for  such 


ABOLITION  OF  TAX  BURDENS.  147 

service,  and  thereby  at  once  reduced  by  more  than  fifty  per 
cent  the  number  of  men  formerly  called  out  and  com- 
pelled to  perform  service,  without  payment.  In  addition, 
the  employment  of  skilled  engineers  and  the  introduction 
of  improved  machinery  for  dredging  and  excavating,  still 
further  reduced  both  the  necessity  for  the  labour  of  in- 
dividuals and  the  general  aggregate  of  former  expendi- 
tures. Whatever  of  the  obligation  of  the  corvee  is  still 
incumbent  on  the  fellah,  as,  for  example,  when  he  is  called 
in  any  sudden  emergency  to  prevent  breaks  in  embank- 
ments in  time  of  flood,  or  keep  clear  the  irrigation  of  his 
own  land,  is  therefore  largely  in  his  own  interest,  and 
even  this  will  probably  at  no  distant  day  be  abolished.  But, 
be  this  as  it  may,  it  is  certain  that  what  of  the  corvee  the 
commission  has  felt  compelled  to  retain  does  not  repre- 
sent one  tithe  of  the  awful  incubus  which  the  old  corvee 
represented  "  in  the  days  of  the  oppression."  The  use  of 
the  koorbash,  or  lash,  which  was  the  former  invariable  ac- 
companiment of  unpaid  labour  in  Egypt,  has  also  been 
absolutely  prohibited.  Of  other  forms  of  relief  to  the 
people  of  Egypt,  effected  by  the  English  fiscal  commission, 
the  following  may  be  mentioned: 

An  abandonment  of  a  tax  on  sheep,  goats,  and  camels, 
which  was  very  obnoxious  to  the  agriculturists;  a  tax  on 
weighing  and  measuring;  octroi  taxes  on  rice,  oil,  and 
other  commodities;  and  a  tax  on  all  trades  and  crafts,  in 
the  nature  of  licenses  on  business  and  professions,  which 
was  collected  in  innumerable  small  sums  from  the  poor- 
est of  the  people.  The  price  of  salt,  the  supply  and  sale 
of  which  was  a  monopoly  of  the  state,  has  been  reduced  to 
the  extent  of  forty  per  cent,  while  large  abatements  have 
been  made  in  judicial  fees,  postal  and  telegraph  rates,  and 
in  railway  rates  and  fares. 

As  formerly,  the  tax  on  land  is  yet  the  corner  stone  of 
Egyptian  finance,  and  can  not  be  rapidly  or  radically  dis- 
turbed ;  but  large  measures  of  relief  have  nevertheless  been 
instituted.  A  vexatious  diversity  of  rates  at  which  land 
has  been  assessed  in  different  parts  of  the  country  has 
been  simplified  to  the  extent  that  a  former  total  number 
of  fourteen  hundred  different  rates  has  been  brought  down 
to  two  hundred.  The  value  of  land  varies  greatly,  accord- 
ing to  its  proximity  to  the  ISTile,  and  the  extent  to  which 


148    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

it  can  be  profitably  supplied  with  water  for  irrigating  pur- 
poses— land  devoted  to  growing  rice  crops  requiring  con- 
stant watering,  but  must  never  be  inundated.  "  From  time 
immemorial  Egyptian  law  has  recognised  an  intimate  con- 
nection between  the  land  tax  and  water  supply.  The  land 
which,  in  any  given  year,  gets  no  water,  is  for  that  year 
legally  exempt  from  all  taxation  whatever.  As  soon  as  it 
gets  water  its  liability  is  established.  But  it  is  evident 
that  the  mere  fact  of  receiving  some  water,  though  it 
may  set  up  the  liability  of  the  cultivator  to  pay,  does  not 
insure  his  capacity  to  do  so.  In  order  to  insure  that,  he 
must  get  his  water  in  proper  quantities  and  at  the  proper 
times.  But  this  is  just  what,  in  thousands  of  instances, 
he  could  not  get,  as  long  as  the  irrigation  system  remained 
in  the  state  of  unutterable  neglect  and  confusion  into 
which  it  had  fallen  in  the  period  previous  to  the  British 
occupation  of  the  country."  Arrears  of  land  taxes  through- 
out the  whole  country  to  the  amount  of  about  $5,000,000 
have  been  remitted  altogether  by  the  commission,  while 
lands  incapable  of  cultivation,  but  heretofore  made  sub- 
ject to  taxation,  have  to  a  great  extent  been  relieved.* 

* "  A  considerable  class  of  lands,  called  mazroof,  sold  many 
years  ago  by  the  Government  at  a  quitrent  which  in  the  course 
of  time  had  come  to  be  looked  upon  as  a  specially  high  rate 
of  land  tax,  has  also  been  assimilated  to  the  surrounding  dis- 
tricts. 

"  Another  measure  of  great  importance  for  the  future  has  been 
the  adoption  of  more  liberal  fiscal  regulations  with  regard  to  land 
brought  for  the  first  time  under  cultivation.  Formerly  the  first 
attempt  to  reclaim  a  piece  of  uncultivated  land  brought  down 
the  tax-gatherer,  who  at  once  subjected  it  to  the  full  burden  of 
the  land  tax.  Now  it  remains  untaxed  until  it  yields  the  first 
remunerative  crop,  and  then  for  two  years  it  pays  only  half  the 
normal  rate.  In  the  same  broad  spirit,  facilities  have  been  granted 
to  people  who  are  found  without  proper  title  in  possession  of  land 
belonging  to  the  Government,  but  on  which  they  have  spent  labour 
and  money  in  developing.  Such  occupiers  can  nowadays  be  con- 
firmed in  possession  on  very  easy  terms,  in  which  full  account  is 
taken  of  all  improvements.  Finally,  a  scheme  has  been  devised, 
and  has  been  already  applied  with  considerable  success,  for  se- 
curing relief,  withoiit  having  to  enter  upon  a  general  reassess- 
ment, in  those  no  longer  very  numerous  cases  where  the  existing 
land  tax  is  really  excessive.  Instead  of  allowing,  as  hitherto, 
arrears  to  accumulate  which  have  ultimately  to  be  remitted,  the 
defaulting  land  is  seized  and  put  up  for  sale,  but  on  such  terms 
as   to   facilitate   the   re-entrv   of   the   owner   on   a    lighter   rating 


LAND  TAX  OP  EGYPT.  149 

The  area  of  land  under  cultivation  in  Egypt  in  1894 
was  about  five  million  acres;  and  in  the  least  prosperous 
part  of  the  country  the  tax  on  the  same  has  been  re- 
duced, since  the  creation  of  the  commission,  to  an  extent 
of  at  least  thirty  per  cent.  The  revenue  from  the  taxation 
of  land,  which  is  at  present  estimated  as  not  exceeding  on 
an  average  £1  ($5)  per  acre,  constitutes  fully  one  half  of 
the  total  receipts  of  the  Egyptian  treasury. 

In  1886,  before  the  reduction  in  this  tax  had  been 
made,  its  revenue  product  was  £5,116,000  ($25,580,000 — 
the  Egyptian  pound  being  about  £1  Os.  6d.).  In  1891  its 
product,  after  the  large  reductions  noted,  was  £5,098,000 
($25,190,000)  ;  a  result  constituting  a  new  and  striking 
illustration  of  a  little  regarded  principle  of  taxation,  that 
v^low  or  moderate  taxes  are  as  a  rule  more  prolific  of  reve- 
nue than  comparatively  high  taxes.  It  is  also  worthy  of 
note  that  the  land  taxes  of  Egypt  under  the  reduced  rates 
are  collected  with  greater  facility  and  much  less  expense 
than  under  the  old  system. 

Viewed,  as  it  should  be,  rather  as  a  rent  than  as  a  tax, 
the  present  Egyptian  tax  on  land  can  hardly  be  regarded 
as  oppressive.  The  number  of  land  proprietors  in  Egypt, 
according  to  the  revenue  returns  for  1893,  was  1,025,000. 
In  only  8,569  cases  were  the  fiscal  officers  obliged  to  seize 
crops  in  payment  of  the  land  tax.  In  three  out  of  four  of 
such  cases  the  mere  seizure  acted  as  a  sufficient  threat  to 
induce  payment,  and  in  only  2,158  cases  was  it  necessary 
actually  to  sell  the  defaulters'  crops.  As  for  the  seizure 
and  forced  sale  of  the  land  itself,  there  were  only  1,865 
cases  of  seizure  and  less  than  one  in  nine  of  actual  sale — 
viz.,  204.  The  number  of  expropriations  for  failure  to  pay 
the  land  tax  had  therefore  been  reduced  to  the  infinitesimal 
proportion  of  one  in  five  thousand. 

The  total  revenue  receipts  of  the  Egyptian  treasury 
during  the  year  1886,  after  the  commission  had  begun  to 
exert  an  influence  on  the  fiscal  affairs  of  the  country,  was 

wherever  the  arrears  are  shown  to  be  due  to  a  prohibitive  assess- 
ment in  the  past. 

"Thus,  not  only  the  huge  accumulation  of  arrears  and  the 
many  smaller  obstacles  have  been  removed  which  blocked  the  ap- 
proaches to  the  land  tax,  but  the  land  tax  itself  has  been  cleared 
of  its  most  mischievous  excrescences." 


150    THE  THEORY  AND   PRACTICE  OF  TAXATION. 

£7,337,000  ($36,685,000).  In  1890  thev  had  increased 
to  £8,040,000  ($40,200,000),  and  in  1891  to  £8,366,000 
($41,830,000).  To  the  extent  of  about  one  third,  this 
augmentation  was  due  to  heavier  taxes  on  tobacco,  and  a 
few  new  taxes,  as  a  tax  on  house  occupancy,  from  which 
all  foreigners  previous  to  1887  were  exempt.  In  general, 
the  increase  in  revenue  receipts  consequent  upon  new  taxes 
imposed  since  1885  has  been  about  £570,000  ($2,850,000)  ; 
but  the  reductions  of  taxation  have  at  the  same  time  been 
notably  in  excess  of  this  amount.  The  public  debt  of 
Egypt,^  which  was  nearly  £99,000,000  ($495,000,000)  in 
1880,  has  been  increased  in  recent  years  to  the  extent  of 
between  two  and  three  millions;  but  this  increase  has  been 
mainly  devoted  to  the  redemption  of  pensions  and  to  re- 
productive public  works. 

The  general  results  that  have  been  attained  in  Egypt 
under  the  fiscal  and  administrative  policy  of  the  British 
commission  are,  therefore,  worthy  at  least  of  being  char- 
acterized as  extraordinary.  They  can  not,  moreover,  be 
properly  exemplified  by  any  mere  exhibit  of  figures.  The 
benefit  that  has  accrued  to  the  Egyptian  people  can  not  be 
properly  measured  by  a  reduction  of  their  taxes,  but  rather 
by  the  increase  in  their  means  of  bearing  the  burden  that 
remains.  "  The  greatest  vice  of  all  in  their  old  system  of 
government  was  that,  while  the  demands  made  upon  the 
people  were  constantly  increasing,  their  capacity  to  meet 
those  demands  was  being  steadily  impaired.  The  Gov- 
ernment took  from  them  twice  as  much  as  it  was  entitled 
to  take,  and  did  not  give  them  in  return  what  it  was  bound 
to  give;  while  the  cofPers  of  the  state  and  the  pockets  of 
its  servants  were  being  filled  by  the  plunderer  of  the  peas- 
antry. The  soil  was  deteriorating  from  the  neglect  of 
those  great  public  works  upon  which  its  fertility  de- 
pended." 

All  this  abuse  has  now  been  entirely  abrogated.  For 
the  first  time  since  the  days  of  the  Roman  administration, 
order  and  prosperity  reign  in  the  valley  of  the  Xile. 

At  no  previoiis  period  since  Egypt  began  to  have  a 
name  has  the  fellah  lived  under  a  government  so  careful 
to  protect  his  rights.  For  the  first  time  he  is  allowed  to 
control  the  fruits  of  his  labour.  To-day,  under  British 
domination,   every   Egyptian   peasant   knows   exactly  the 


RESULTS  OP   ENGLISH  OCCUPATION.  151 

amount  of  taxes  he  has  to  pay  and  when  he  has  to  pay 
them;  and  that  when  he  has  once  paid  the  legal  amount, 
no  official,  big  or  small,  has  the  power  to  extort  from  him 
one  single  piastre  beyond  it.*  He  knows,  too,  that  he  can 
not  at  any  moment  be  seized  and  dragged  off  as  formerly, 
perhaps  to  some  different  part  of  the  country,  to  work 
under  constant  dread  of  the  whip,  at  any  task  suggested 
by  the  caprice  of  the  Khedive  or  of  some  powerful  pasha. 
Under  such  circumstances  Egypt  has  never,  certainly  not 
within  a  recent  period,  enjoyed  so  large  a  measure  of 
prosperity.  Notwithstanding  the  recent  universal  decline 
in  price  of  agricultural  staples,  the  Egyptian  products  and 
exports  of  cotton,  sugar,  tobacco,  wheat,  etc.,  have  rapidly 
increased,  and  at  present  are  much  greater  than  at  any  for- 
mer period.  The  annual  increase  in  the  great  staple  product 
of  Egyptian  agriculture — cotton — from  the  average  of 
188-i-'89  to  that  of  1893-94  was  nearly  a  hundred  per  cent, 
whereby  the  cultivator  was  not  only  able  to  pay  his  taxes 
more  easily,  but  has  more  money  left  for  his  own  needs. 

When  England  first  occupied  the.  country  the  four-per- 
cent Egyptian  debt  securities  were  quoted  at  about  50,  and 
not  long  before  had  been  quoted  as  low  as  27.  To-day 
their  quotation  is  over  100,  with  a  reduction  of  their 
originally  stipulated  interest. 

One  of  the  most  recent  results  of  the  British  occupa- 
tion of  Egypt  has  been  a  practical  abolition  of  human 
slavery.  Under  existing  regulations  every  slave  in  Egypt 
(the  former  great  market  for  enslaved  people  of  Africa) 
may  demand  his  manumission  if  he  chooses ;  and  if  the 
Soudan  be  retaken  by  Egyptian  troops  under  British  leader- 
ship, it  will  be  equivalent  to  opening  the  prison  doors  to 
hundreds  of  thousands  of  captives. f 

* "  The  poorest  peasant  in  the  country  is  now  annually  fur- 
nished with  a  tax-paper,  irifd,  as  it  is  called,  which  shows  him 
exactly  what  he  has  to  pay  to  the  Government,  and  at  what 
seasons  the  instalments  are  due.  The  dates  of  these  instalments, 
moreover,  which  vary  in  different  provinces,  have  been  arranired 
so  as  to  correspond  as  nearly  as  possible  with  the  seasons  when 
the  cultivator  realizes  his  produce,  and  is  therefore  in  the  best 
position  to  discharge  his  debt  to  the  state.  The  necessity  no 
longer  exists  of  resorting  to  bribery  as  a  protection  against  the 
extortion  of  sums  not  due  on  the  part  of  the  tax-gatherer." 

t  This  has  now  been  accomplished   (1898). 


152    THE  THEORY  AND   PRACTICE   OP  TAXATION. 

In  1876  the  district  known  as  the  "  Fayoum,"  on  the 
west  side  of  the  Nile,  southwest  of  Cairo,  was,  according 
to  a  correspondent  of  the  London  Times,  "  reduced  by  mis- 
rule to  the  greatest  depths  of  misery  probably  ever  experi- 
enced in  modern  times  in  Egypt.  The  burden  of  taxation 
and  oppression  had  produced  an  amount  of  want  which 
almost  bordered  on  starvation.  At  the  present  time 
(1894)  it  is  one  of  the  most  prosperous  and  contented  of 
provinces,  and  bids  fair  to  become  in  the  future  the  very 
garden  of  Egypt." 

A  further  striking  proof  of  the  prosperity  of  Egypt 
under  British  administration  is  afforded  by  the  financial 
report  for  1895,  made  by  Lord  Cromer,  the  British  diplo- 
matic agent,  which  shows  a  revenue  in  excess  of  all  ex- 
penditures for  that  year  of  £1,088,000  ($5,440,000),  per- 
mitting a  relief  to  the  taxpayer  to  that  extent.  This  has 
been  accomplished  in  the  face  of  liberal  reductions  in 
taxes.  Certain  of  these  concessions  should  be  recorded  if 
only  to  show  the  enlightened  policy  pursued  by  the  foreign 
ruler  of  Egypt.  Since  1890  the  remission  of  taxation  has 
been  as  follows : 

Corvee £400.000  =  $2,000,000 

Land  tax 574.000  =  2,870.000 

Professional  tax 180.000  =  900,000 

Sheep  and  goat  tax 40.000  =  200.000 

Weighing  tax 28.090  =  140.000 

Sundries. 53,000  =  265,000 

Total £1,275,000     =     $6,375,000 

N"or  is  this  all.  Arrears  of  the  land  tax  to  the  amount 
of  $5,000,000  have  been  remitted ;  the  salt  tax  has  been 
reduced  forty  per  cent ;  a  beginning  has  been  made  toward 
the  total  abolition  of  tolls  paid  by  boats  on  the  Nile,  a 
step  toward  making  the  navigation  of  that  river  entirely 
free;  the  construction  of  bridges  over  the  canals,  thus 
relieving  the  people  of  the  cost  of  ferries,  and  the  repeal 
of  the  tax  on  carriages,  horses,  mules,  and  donkeys  in 
Cairo,  a  tax  paid  only  by  the  natives.  "  With  its  abolition 
the  last  remnant  of  European  fiscal  privilege  disappears." 

That  the  continued  prosperity  and  development  of 
Egypt  are  dependent  on  the  continued  administration  of 
the  country  by  the  British  Government  seems  too  clear  to 


WELFARE  OF  THE  PEOPLE.  153 

admit  of  questioning;  and  it  is  also  not  less  evident  that 
if  Egypt  should  now  be  abandoned  by  it,  all  that  has  been 
done  for  it  would  be  speedily  undone.* 

Finally,  in  considering  the  recent  and  remari^able  fiscal 
experience  of  Egypt,  one  point  of  great  economic  in- 
terest should  not  be  overlooked — namely,  the  lesson  it 
teaches  of  the  closeness  of  the  relations  of  the  finances  of 
a  state  to  the  welfare  of  its  people;  and  that  these  rela- 
tions, which  are  apt  to  be  obscured,  or  even  wholly  lost 
sight  of,  under  conditions  of  high  and  complex  civiliza- 
tion, speedily  make  themselves  apparent,  and  are  therefore 
more  easily  traced  and  studied  in  a  country  of  limited  area 
and  simple  conditions  of  living  on  the  part  of  its  people. 
This  experience  historically  groups  itself  under  three  sepa- 
rate and  distinct  periods :  First,  the  period  of  reckless 
prodigality  under  the  reign  of  Ismail  Pasha,  from  1863 
to  1879,  of  sixteen  years.  Second,  a  period  of  sudden  retri- 
bution fraught  with  widespread  misery,  from  1879  to  1886. 
Third,  a  period  of  recovery  from  utter  collapse,  from  1886 
to  the  present  time,  the  result  of  intelligent  fiscal  admin- 
istration so  signal  and  complete  as  to  be  without  precedent 
in  history. 

An  illustration  of  how  history  in  Egypt  has  seemingly 
repeated  itself  in  respect  to  taxation  is  here  pertinent  to 
the  subject.  Prior  to  the  nineteenth  century  a  key  to  the 
hieroglyphic  writing  of  Egypt  or  of  the  so-called  "  de- 
motic," which  was  a  short-hand  or  abridged  form  of  the 
true  hieroglyphics,  had  not  been  discovered,  and  there  was 
little  probability  that  it  ever  would  be. 

In  1799,  however,  during  the  French  occupation  of 
Egypt,  a  large  slab  of  black  granite  (now  in  the  British 
Museum),  which  originally  had  been  a  monument  in  some 

*  In  a  recent  debate  (1896)  in  the  British  House  of  Commons, 
Mr.  Chamberlain,  the  Secretary  of  State  for  the  Colonial  Depart- 
ment, said:  "It  would  be  impossible  to  pass  judgement  upon  the 
policy  of  the  Government  unless  the  Government  first  made  up  its 
mind  definitely  in  regard  to  the  immediate  evacuation  of  Egypt. 
Nothing  in  recent  history  could  be  looked  back  to  with  more 
pride  and  satisfaction  than  the  peaceful  revolution  in  Egyptian 
affairs  which  had  been  accomplished  with  a  handful  of  men  and  a 
British  civil  administration.  If  Egypt  should  be  abandoned,  all 
this  would  be  undone.  Egypt  must  be  defended  if  her  prosperity 
was  to  continue." 
11 


154    THE  THEORY  AND   PRACTICE  OF  TAXATION. 

public  edifice,  was  discovered  in  excavating  for  military 
purposes  near  the  village  of  Eosetta,  a  place  in  Lower 
Egypt  not  far  distant  from  Alexandria  and  the  western 
mouth  of  the  Nile.  The  slab  had  on  it  three  inscriptions 
— the  first  in  hieroglyphic  text,  the  second  in  the  demotic 
character,  and  the  third  in  Greek  letters;  and  a  study  and 
comparison  of  them,  mainly  by  Champollion,  a  French 
scholar,  led  to  a  solution  of  the  problem  of  deciphering 
the  hieroglyphic  writing,  which  previously  had  almost  com- 
pletely baffled  analysis.  It  was  then  found  that  the  tri- 
lingual inscriptions  were  in  the  main  a  copy  of  a  decree 
in  honour  of  Ptolemy  V,  Epiphines,  King  of  Egypt,  who, 
about  193  B.  c,  had  conferred  great  benefit  on  his  country 
and  its  people  by  remitting  certain  taxes  and  reducing 
others,  and  read  as  follows : 

"  Considering  that  the  King  Ptolemy,  ever  living,  the 
well-beloved  of  Phtah,  most  gracious  son  of  the  King  Ptol- 
emy and  of  the  Queen  Arsinoe — gods  philopatores  (father- 
loving) — has  done  all  kinds  of  good;  .  .  .  that  he  has  not 
neglected  any  of  the  means  within  his  power  to  perform 
acts  of  humanity;  that  in  order  that  in  his  kingdom  the 
people  and  in  general  all  the  citizens  should  be  in  pros- 
perity, he  has  suppressed  altogether  some  of  the  taxes 
and  imposts  established  in  Egypt,  and  has  diminished  the 
onus  of  others :  ...  It  has  therefore  pleased  the  priests 
of  all  the  temples  of  the  land  to  decree  that  all  the  honours 
belonging  to  the  king  shall  be  considerably  augmented ; 
that  his  statue  shall  be  erected  in  the  most  conspicuous 
spot  in  each  temple ;  that  the  priests  shall  perform  three 
times  each  day  religious  service  to  these  statues ;  and  that 
in  all  great  solemnities  all  the  honours  due  to  other  deities 
shall  be  paid  them.  .  .  ." 

More  than  two  thousand  years  have  elapsed  since  the 
service  rendered  by  Ptolemy  to  Egypt  and  its  people  by  the 
remission  and  readjustment  of  taxes  was  thus  commemo- 
rated. King,  priests,  and  people  have  long  since  passed 
away;  but  if  they  could  return,  their  gratitude  to  the  Eng- 
lish tax  commission  for  the  service  rendered  to  their 
country  and  to  their  descendants  would  certainly  again 
be  recognised  and  fitly  commemorated. 

Another  point  of  historical  and  fiscal  interest  in  con- 
nection with  Egypt  is  worthy  of  notice.     Of  the  conquest 


TAXATION   IN  BRAZIL.  155 

and  occupation  of  Egypt  by  the  French,  1798-1801,  the 
masses  of  its  people  have  but  little  knowledge;  but  the 
name  of  General  Kleber,  to  whom  the  government  of  the 
country  was  intrusted  by  Napoleon  on  his  return  to  France, 
is  still  held  in  grateful  remembrance,  coupled  with  the 
highest  title  that  the  Arabs  could  bestow  upon  him — name- 
ly, "  The  Just " — because  under  his  rule,  as  popular  ex- 
pression has  it,  "  he  levied  taxes  only  once."  * 

Taxation  in  Brazil. — A  most  striking  and  instruc- 
tive example  of  the  strangulation  of  the  commerce  of  a 
country,  and  its  consequent  impoverishment  by  reason  of  a 
vicious  system  for  the  collection  of  revenues,  is  to  be  found 
in  the  recent  experience  of  the  South  American  state  of 
Brazil.  Its  Government  derives  its  support  mainly  from 
export  and  import  duties,  and  every  province,  whether 
maritime  or  interior,  collects  a  separate  duty  of  generally 
about  four  or  five  per  cent  on  its  exports,  to  which  in  some 
instances  a  municipal  tax  is  added.  In  the  case  of  Ama- 
zonas,  where  the  rubber  industry  has  been  greatly  devel- 
oped, nine  tenths  of  its  revenue  is  derived  from  the  export 
duty  on  rubber.  There  is  no  taxation  upon  either  real  or 
personal  property;  but  when  a  piece  of  real  estate  is  sold, 
the  purchaser  is  required  to  pay  a  fee  to  the  Government 
of  five  per  cent  on  the  selling  price.  All  stores  are  obliged 
to  obtain  a  license,  for  which  a  fee  is  exacted,  the  amount 
varying  with  the  kind  of  trade.  The  duties  on  imports  are 
extremely  heavy,  and  on  many  articles,  especially  foods, 
are  in  excess  of  their  original  cost  at  their  place  of  produc- 
tion. On  some  of  the  principal  articles  of  export  the  duties 
have  been  as  high  as  twenty-three  per  cent  ad  valorem,  on 
rubber  and  cocoa  fourteen  per  cent,  and  thirteen  per  cent 

*  For  the  material  which  has  furnished  the  basis  for  the  fore- 
going narrative  of  the  recent  fiscal  (tax)  experience  of  Egypt, 
the  writer  has  been  mainly  indebted  to  a  book,  England  in  Egypt, 
London,  1804,  by  Sir  AlJfred  INIilner,  formerly  a  member  of  the 
Egyptian  Fiscal  Commission,  and  now  chairman  of  the  British 
Board  of  Inland  Eevenue;  to  a  series  of  letters  published  in  the 
London  Times  in  1894;  to  various  official  documents,  and  inter- 
views with  those  personally  conversant  with  the  subject  under 
consideration.  Lord  Cromer  each  year  submits  to  Parliament  an 
elaborate  detail  of  the  finances,  administration,  and  condition  of 
Egypt,  and  his  reports  are  remarkable  for  their  ability  and  treat- 
ment of  public  questions. 


156    THE  THEORY  AND   PRACTICE  OF  TAXATION. 

on  coffee.  Few  countries  have  greater  commercial  and 
industrial  possibilities  than  Brazil;  but  Nature's  prodigal 
efforts  have  been  rendered  futile  by  a  vicious  system  of 
taxation,  which  has  so  restricted  the  development  of  her 
resources  that  the  increase  of  exports  in  recent  years  has 
been  mainly  confined  to  the  single  article  of  India  rubber, 
for  the  supply  of  which  the  country  has  practically  a  mo- 
nopoly. What  is  raised  in  Brazil  is  taxed;  what  is  bought 
by  her  is  taxed;  while  taxes  are  levied  on  her  product  of 
labour  and  on  the  payments  for  such  products.  The  gen- 
eral result,  therefore,  has  been  that  the  world  can  buy  com- 
paratively little  of  the  Brazilian,  and  the  Brazilian  has 
comparatively  little  with  which  to  buy  of  the  world. 

No  better  system  has  been  followed  in  the  internal 
taxes  of  the  country,  and  discriminating  duties,  levied 
upon  foreigners  and  foreign  corporations,  have  been  im- 
posed, in  spite  of  the  opinion  that  such  duties  are  uncon- 
stitutional. Resort  to  extraordinary  taxes  is  made  be- 
cause of  the  inability  to  obtain  much  more  revenue  from 
imports,  exports  (gold  and  gunpowder),  and  the  few  inter- 
nal imposts.  "  The  Constitution  lays  down  narrow  limits 
within  which  the  Federal  Government  may  impose  taxa- 
tion, such  important  sources  of  revenue  as  land  and  house 
taxes,  taxes  on  transfer  of  property,  and  on  professions 
and  industries,  and  export  duties,  being  reserved  to  the 
governments  of  the  States ;  nor  can  the  Federal  Treasury 
draw  on  the  resources  of  the  States,  most  of  which  are 
able  to  show  a  respectable  surplus.  .  .  .  The  very  vastness 
of  the  territory  of  Brazil,  and  the  lack  of  certain  and 
easy  communications,  render  many  taxes  impossible  or 
unprofitable,  through  the  high  cost  and  uncertainty  of  col- 
lecting them." 

The  finances  of  Brazil  have  never  been  well  managed. 
Under  the  empire,  from  1822  to  1886,  the  accumulated 
deficits  amounted  to  more  than  $310,000,000.  It  may  be 
urged  that  the  greater  part  of  this  expense  had  been 
placed  in  the  construction  of  railways,  ports,  and  other 
useful  objects  by  which  the  national  wealth  has  been  in- 
creased. Under  the  republic,  or  since  1886,  the  deficits 
have  amounted  to  $95,000,000,  or  nearly  $10,000,000  a 
year,  and  the  large  sums  borrowed  during  this  period  have 
been  spent  in  making  good  deficits,  in  paying  for  the  ex- 


LARGE  DEBT  OF  BRAZIL.  157 

travagance  of  the  administration,  and  in  unprofitable  ex- 
penditures, such  as  that  caused  by  the  naval  revolt  and 
the  Eio  Grande  revolution.  The  immense  sums  of  paper 
money  issued  and  its  depreciation  have  disorganized  foreign 
commerce,  and  imposed  a  tax  upon  its  foreign  financial 
duties,  in  connection  with  its  loans,  that  grows  heavier  each 
year.  "  The  Government  has  annually  to  find  a  sum  of 
more  than  £5,000,000  sterling  to  meet  its  gold  obligations. 
The  ordinary  receipts  being  almost  exclusively  in  paper, 
and  exchange  having  fallen  from  27§d.  in  1889  to  7rf.  in 
December,  1897,  the  difficulty  of  finding  gold  for  these  re- 
mittances has  yearly  increased,  until  the  burden  of  foreign 
debt  has  become  almost  unbearable.  At  the  latter  rate 
the  loss  incurred  in  purchase  of  gold  for  remittances,  esti- 
mated for  1898  at  £5,029,877,  would  amount  to  127,742,903 
milreis.  At  6d.,  a  rate  reached  three  months  later,  the 
loss  would  be  156,485,067  milreis — nearly  half  the  entire 
estimated  revenue."  *  As  the  revenues  are  decreasing,  and 
existing  taxes  have  reached  their  limit  of  productiveness, 
it  is  proposed  to  resort  to  an  income  tax. 

*  Report  of  Mr.  Beaumont,  second  secretary  of  H.  B.  M.  legation 
at  Rio  de  Janeiro,  1898. 


CHAPTER  VII. 

TAXATIOX    r.V    BRITISH    INDIA, 

The  Tax  Experiences  of  India. — In  contrast  with 
the  record  of  tax  experiences  in  Egypt,  that  of  India  under 
like  (British)  influences,  though  equally  singular  and  in- 
structive, is  not  equally  satisfactory.  The  elements  of  the 
problem  of  raising  sufficient  revenue  to  defray  the  expenses 
of  the  state  since  India  passed  under  British  rule  and  in- 
fluence are  substantially  as  follows: 

A  vast  area  of  territory — 1,609,151  square  miles — with 
a  population  comprising  more  than  one  fifth  of  the  human 
race — 288,159,692  in  1891 — and  increasing  at  the  rate  of 
at  least  30,000,000  for  every  decade,  a  number  about  equal 
to  the  present  population  of  England  and  Wales;  without 
homogeneity,  but  divided  and  subdivided,  as  is  the  case 
in  no  other  country,  by  diversity  of  race,  religion,  caste, 
and  language.*  Of  the  population  of  India,  217,000,000, 
according  to  the  census  of  1881,  were  unable  to  read  or 
write;  while  as  respects  property,  the  testimony  of  recog- 
nised authorities  in  1877  was,  that  the  value  of  the  total 
yield  of  the  land  of  India  from  all  sources,  including  the 
produce  of  mines  and  the  annual  value  of  manufactures, 
would  not  average  more  than  forty  shillings  (ten  dollars) 
per  head  for  the  entire  population,  f  As  compared  with 
Egypt,  the  situation  in  India  has  this  marked  difference, 

*  In  the  Statistical  Abstract  relating  to  British  India,  annually 
published  by  the  home  Government,  eighty-eight  different  lan- 
guages, distinctively  Asiatic  or  non-European,  are  recognised  as 
characteristic  of  the  population.  In  lSS4-'8o,  out  of  a  then  total 
population  of  253.S91.o36,  only  202.920  were  reported  as  using 
English  in  the  sense  of  a  mother-tongue;  and  only  1,862,626  that 
admitted  of  classification  as  "  Christians." 

t  Resources   of   Modern   Coiintries.     A.   J.   W^l='^n.     Lonemans, 
London,  1S78,  vol.  i,  p.  57.     Taxation  in  India.     Shoshee  Chunder 
Dutt,  Justice  of  the  Peace,  Calcutta. 
158 


ALLEGED   POVERTY  IN  INDIA.  159 

namely,  that  whereas  in  the  former  country  the  extreme 
poverty  of  its  rural  population — the  fellahs — has  not  been 
due  to  any  lack  of  fertile  land,  or  any  incapacity  on  their 
part  for  obtaining  from  it  a  comfortable  subsistence  with 
continued  betterments  in  condition,  but  owing  to  the  fact 
that  they  have  from  time  immemorial  been  deprived  of 
the  control  of  the  fruits  of  their  labours;  while  in  India 
the  population  is  increasing  so  rapidly — especially  under 
the  conditions  of  peace  which  have  been  attendant  on  Brit- 
ish rule — and  so  disproportionately  to  the  amount  of  new 
and  fertile  soil  that  can  be  appropriated,  as  to  leave  but 
little  margin,  under  existing  methods  of  cultivation,  for 
increasing  the  means  of  subsistence  for  the  people.  In 
fact,  the  "  Malthusian  theory "  is  completely  exemplify- 
ing itself  in  India,  which  is  densely  populated,  destitute 
in  a  great  degree  of  roads  and  of  the  knowledge  and  use 
of  machinery.* 

In  a  debate  in  the  British  House  of  Commons  on  the 
Indian  budget,  in  August,  1894,  Mr.  Seymour  Keay,  an 
ex-official  of  the  Indian  Government,  stated  that  in  1893 
"  he  had  a  census  taken  of  five  villages  in  the  presidency 
of  Bombay.  The  population  was  236.  These  five  villages 
farmed  1,400  acres,  the  gross  crop  of  which  was  valued 
at  £193.  If  a  starvation  support  of  14  shilHngs  a  year 
were  allowed  to  each  of  the  236  persons  and  11  shillings 
a  year  for  each  pair  of  bullocks  kept  to  till  the  farm,  the 
net  produce  of  the  five  villages  amounted  to  £5  for  the 
year.  Yet  in  the  same  year  they  paid  to  the  inland 
revenue  £73,  and  the  village  books  showed  that  it  was 
done  by  borrowing  from  the  usurers  at  twenty-four  per 
cent." 

*  Under  the  old-time  system  of  native  rulers,  frequent  wars, 
consequent  on  foreign  invasions  and  internal  race  antagonisms, 
with  accompanying  famines  and  epidemic  diseases,  materially  re- 
stricted the  growth  of  the  population  of  India.  But  under  the 
conditions  of  peace  that  have  been  attendant  during  the  last  half 
century  of  British  rule,  the  population  of  India  has  increased  so 
rapidly  that  the  limits  of  the  agricultural  capacity  of  the  country, 
and  the  consequent  means  of  subsistence  for  its  people,  seem  to 
be  approaching  exhaustion;  and  one  extraordinary  drain  upon  the 
revenues  of  the  Government  in  later  years  has  been  due  to  the  wise 
creation  of  a  national  famine  fund,  to  be  used  in  cases  of  peri- 
odical emergencies  due  to  failure  of  the  crops,  for  the  relief  of 
multitudes  who  would  otherwise  perish  by  starvation. 


160    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

Mr.  Keay  further  stated  that  ''  about  seven  years  ago 
the  Director-General  of  Statistics  for  all  India  published 
a  book  in  which  he  stated  that  40,000,000  of  the  people 
of  India  habitually  went  through  life  on  an  insufficiency 
of  food.  The  Government  of  India  wanted  to  be  able  to 
deny  the  statement,  and  they  sent  a  confidential  circular 
to  the  heads  of  departments  and  governors,  in  which  they 
asked  whether  it  was  wholly  or  partially  true,  not  that 
40,000,000,  but  that  the  greater  proportion  of  the  popula- 
tion of  India  suffered  from  an  insufficiency  of  food;  and 
they  directed  that  men  of  '  experience  and  judgment ' 
should  be  set  to  make  the  inquiries.  The  replies  were 
contained  in  five  confidential  Blue-books.  In  the  district 
of  Eampoor  twelve  scattered  villages  were  taken,  with  a 
total  population  of  3,000.  Of  these,  1,600  were  cultiva- 
tors, and  the  remaining  400  were  labourers,  artisans,  etc. 
It  was  found  that,  after  deducting  rent  and  the  cost  of 
cultivation,  the  cultivators  had  available  for  their  support 
during  the  year  sixteen  rupees  (=  £1)  each,  while  the  la- 
bourers had  seventeen  shillings  a  year  each  as  the  whole 
means  of  their  subsistence.  In  another  case  it  was  shown 
that  in  a  district  having  a  population  of  over  1,000,000 
souls,  173  persons  had  only  thirteen  shillings  a  year  each  to 
live  upon.  In  another  district  the  official  reports  which 
were  contained  in  Blue-books  marked  '  confidential '  showed 
that  in  a  large  district  nearly  all  the  inhabitants  had  to 
live  upon  from  three  eighths  to  three  quarters  of  the 
amount  of  grain  which  was  ascertained  to  be  the  minimum 
that  would  support  a  healthy  condition  of  life."  * 

In  the  debate  that  ensued,  Sir  Richard  Temple,  an- 
other ex-official  of  India,  stated  that  "  the  calculations  re- 
ferred to  by  Mr.  Keay  were  not  worth  the  paper  they  were 
written  on  or  the  breath  with  which  they  were  uttered. 
The  data  upon  which  they  were  founded  were  suppositi- 
tious, and  the  deductions  drawn  from  them  were  impos- 
sible. If  they  were  true,  the  people  of  India  would  not 
be  living  at  all,  and  the  land  would  be  of  no  market  value. 
Yet,  in  another  breath  they  were  told  that  large  sums  of 
monev  were  being  advanced  by  local  banks  on  security  of 
the  land." 

*  Hansard,  Fourth  Series,  vol.  xxviii,  pp.  1115-1120. 


LIGHT  TAXATION   IN  INDIA.  161 

Mr.  Keay  said  that  he  had  quoted  facts,  and  not 
opinions. 

Sir  E.  Temple  retorted  that  "  the  supposed  facts  were 
no  facts  at  all.  All  that  these  gentlemen  could  possibly 
know  was  that  there  were  so  many  people  on  the  ground, 
and  that  there  were  so  many  acres.  The  calculations  men- 
tioned were  snares  and  delusions.  He  would  rather  take 
certain  general  facts  which  could  be  tested.  He  could  not 
undertake  to  say  how  a  particular  peasant  family  lived, 
but  he  knew  what  the  general  statistics  were.  He  knew 
what  the  area  under  cultivation  was,  what  the  ratio  of  the 
increase  of  population  was,  what  the  expansion  of  trade, 
and  what  the  exportation  of  food  stuffs  amounted  to.  It 
was  said  that  the  people  of  India  were  starving,  although 
th^y  were  exporting  grain  to  such  an  extent  to  England 
that  they  were  seriously  disturbing  the  prospects  of  Brit- 
ish agriculture.  It  was  said  that  the  people  of  India  were 
sinking  into  poverty,  although  during  the  last  decade  they 
had  shown  the  greatest  increase  of  population  recorded 
in  the  annals  of  the  human  race,  the  population  having  in- 
creased by  30,000,000  within  ten  years.  .  .  .  No  doubt  the 
taxable  capacity  of  the  people  was  low,  but,  then,  the  taxa- 
tion was  light.  The  poorer  classes  of  the  Indian  people 
were  the  lightest  taxed  people  in  the  world.  He  did  not 
know  exactly  what  the  value  of  a  peasant's  produce  might 
be,  but  he  certainly  knew  what  was  the  rate  of  wages 
among  the  poor,  and  it  might  be  assumed  that  no  man 
df  any  industrial  capacity  would  make  less  than  the  cur- 
rent rate  of  wages.  The  poorest  man  in  India  could  earn 
five  rupees  in  a  month,  or  sixty  rupees  in  a  year,  and  could 
any  one  say  a  poor  man  in  India  had  to  pay  more  than  two 
rupees  out  of  the  sixty  in  taxation?  ...  A  farm  labourer 
in  England  earned,  say,  £35  a  year.  Would  anybody  say 
that  he  paid  less  or  more  than  about  £2  a  year  in  taxation? 
That  being  so,  the  poor  man  in  England  paid  one  seven- 
teenth of  his  income  in  taxation,  while  the  poor  man  in 
India  paid  only  one  thirtieth  of  his.  As  to  the  general 
condition  of  the  poor  of  India,  how  could  any  of  those  who 
were  exporting  food  stuffs  to  such  an  enormous  extent,  and 
increasing  the  population  so  fast  that  one  scarcely  knew 
what  would  become  of  them  all,  be  said  to  be  dying  of  star- 
vation?    This  was  the  answer  to  be  given  to  the  specu- 


162    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

lations  of  Indian  officials,  and  to  the  haphazard  calcula- 
tions of  amateur  statisticians."  * 

It  was  evident,  therefore,  from  the  outset  that  the 
natural  conditions  of  India  were  as  antagonistic  to  the 
adoption  of  what  may  be  termed  the  civilized  forms  of 
taxation,  as  they  were  to  the  adoption  of  the  Christian 
religion  or  English  habits  and  language;  and  the  problem 
to  the  new  rulers  for  obtaining  revenue  for  the  support  of 

*  Hansard,  Fourth  Series,  vol.  xxviii,  pp.  1121-1123. 

I  have  been  asked  if  there  is  any  explanation  of  the  remark- 
able difl'erence  in  opinion  respecting  the  material  condition  of  the 
people  of  India,  recently  expressed  in  the  British  House  of  Com- 
mons (and  quoted)  by  two  of  its  members,  Mr.  J.  S.  Keay  and 
Sir  Richard  Temple. 

The  explanation  is  probably  to  be  found  in  the  old  storjj,  of 
the  two  knights  who  differed  and  quarrelled  about  the  mottoes 
on  a  suspended  shield,  by  reason  of  exclusively  viewing  it  from 
opposite  sides.  India  is  a  vast  country,  about  half  as  large  in 
land  area  (square  miles)  as  the  United  States,  exclusive  of  Alaska, 
and  with  a  population  of  287,000,000,  so  widely  separated  by  caste, 
language,  and  religions  that  districts  and  villages  that  have  been 
in  close  contiguity  for  long  periods  practically  do  not  know  or 
have  intercourse  with  each  other.  In  those  portions  of  the  country 
where  the  inhabitants  are  fairly  intelligent,  have  learned  to  avail 
themselves  of  modern  methods  of  agriculture,  and  have  irrigation 
and  transportation  facilities,  the  production  of  foods  and  other 
commodities  is  so  far  in  excess  of  any  domestic  demand,  as  to 
adniit  of  such  a  large  and  constant  export  of  grain  stuff's  as  to 
threaten  disturbance  to  the  markets  of  Europe  and  the  United 
States,  besides  textiles,  fibres,  dyestuflTs,  opium,  oils  and  oil  steds, 
hardware,  sugar,  etc.  In  other  districts  of  large  population  whq§e 
the  people  still  plough  Avith  crooked  sticks,  do  not  even  recog- 
nise the  value  of  manures  or  other  fertilizers,  are  almost  entirely 
lacking  in  facilities  for  transportation,  and  are  so  bound  down 
by  caste  that  it  is  difficult  to  induce  them  to  emigrate  to  districts 
— like  the  Assam  tea-producing  sections — where  labour  is  in  good 
demand  at  comparatively  high  wages — in  such  districts  the  in- 
crease of  population  so  presses  on  its  ordinary  food  supplies  that, 
in  case  of  any  deficiency  in  the  average  crops,  famine  always 
ensues,  and  is  only  mitigated  by  the  aid  that  comes  through  the 
extraordinary  pension  fund  established  and  distributed  by  the 
British  Colonial  Government.  The  Duke  of  Argyll,  who  has  been 
Secretary  of  State  for  India,  tells  us  that  "  those  only  who  have 
had  any  share  in  the  government  of  India  can  know  what  the 
anxiety  is  arising  out  of  such  conditions  of  population";  and 
extensive  emigration  is  now  advocated  as  the  best  remedial  action 
that  can  be  taken.  Making  allowance  for  different  standpoints 
of  observation,  Mr.  Keay  and  Sir  Richard  Temple  were,  therefore, 
both  right  in  their  conclusions.  


THE   INDIAN   BUDGET.  163 

their  Government,  without  resort  to  the  old  forms  of  arbi- 
trary exactions  or  plunder,  has  accordingly  always  been 
one  of  great  difficulty  and  delicacy;  and  the  record  of  their 
experience  in  attempting  to  solve  it  constitutes  an  exceed- 
ingly novel  and  important  chapter  in  economic  history. 

Practically  the  only  guide  to  them  for  the  determina- 
tion and  collection  of  taxes  has  been  that  of  expediency. 
The  imperial  revenue  of  British  India  for  1893-94,  stated 
in  tens  of  rupees,  was  60,193,000,  making  no  allowance 
for  the  depreciation  of  silver.  The  value  of  ten  rupees  is 
very  nearly  equivalent  to  the  British  pound  sterling,  or 
five  dollars  gold  coin  of  the  United  States.  The  ordinary 
revenue  of  India  for  the  fiscal  year  1893-'9-l  was,  therefore, 
about  $300,968,000.  The  expenditures  exceeded  the  re- 
ceipts of  revenue  to  the  extent  of  about  $30,000,000,  and 
represented  an  annual  deficit  to  that  extent.* 

The  sources  of  revenue  in  India  are  mainly  seven,  but 
all  of  them,  using  the  term  in  its  ordinary  signification, 
can  not  be  characterized  as  "  taxation." 

The  first  and  most  important  of  them  is  the  taxation  of 
land,  with  which  the  Asiatic  people  have  been  familiar 
from  a  most  remote  period,  and  the  justice  of  which  is  least 
questioned  by  them.  In  fact,  reliance  upon  land  revenue 
was  a  feature  of  the  Indian  governments  long  before  Eng- 
land had  any  control  over  India.  The  native  rulers  main- 
tained themselves  for  centuries  by  exacting  shares  of  crops 
and  cash  contributions  from  cultivators  of  the  soil.  Tax- 
ation of  land  in  India  has  therefore  been  retained,  and  not 
instituted  by  the  present  (British)  Government.  The  en- 
tire land  of  India  was  nationalized  centuries  ago,  and  now 
as  formerly  (and  as  is  the  case  "in  China)  the  primary  title 
to  all  land  inheres  in  the  state  or  Government,  and  the 
cultivators  of  land  pay  a  certain  rent  in  respect  to  their 
tenancy. 


* "  The  gross  revenue  and  the  gross  expenditure  of  Inrlin  are 
very  different  things  from  the  real  revenue  and  real  expenditure. 
In  the  gross  revenue  is  included  the  entire  receipts,  and  in  the 
gross  expenditure  is  included  the  entire  expenditure  of  the  whole 
railway  system  of  India,  the  whole  of  the  canal  system,  and  of 
the  irrigation  works." — Speech  of  Mr.  H.  Fnirlrr.  Secretary  of 
State  for  India,  introducing  into  Parliament  the  Budget  for  India, 
August  15,  1S94. 


164    THE  THEORY  AND   PRACTICE  OP  TAXATION. 

There  are  two  methods  of  land  assessment  in  India, 
which  involve  a  somewhat  curious  history.  A  hundred 
years  ago,  under  the  administration  of  Lord  Cornwallis, 
an  arrangement  or  treaty  was  made,  which  then  and  for- 
ever fixed  the  rate  which  the  tenants  of  land  in  the  gov- 
ernment of  Bengal — representing  about  one  fourth  of  the 
present  area  of  British  India — should  pay  the  state  for 
their  occupancy,  and  which  then  was  regarded  as  a  fair 
rental;  and  although  since  that  arrangement  was  made, 
the  land  in  question,  owing  to  increased  population,  new 
industries,  and  state  expenditures  on  roads  and  railroads, 
has  greatly  increased  in  value,  and  yields  to  the  represent- 
atives of  the  primary  lessees  threefold  or  more  rental,  the 
British  Government  has  to  this  day  strictly  respected  its 
treaty  and  fulfilled  its  agreement.  The  fortunate  con- 
trollers of  the  land  thus  rented — the  zemindars,  or  native 
capitalists — having,  however,  improved  their  opportunities 
to  oppress  (rackrent)  their  subtenants,  the  Indian  Govern- 
ment, since  1885,  has  undertaken  to  remedy  this  evil,  and 
with  a  considerable  degree  of  success.  Land  throughout 
India  is  divided  into  provinces,  and  the  provinces  them- 
selves are  divided  and  subdivided  in  such  way  that  taxa- 
tion in  each  locality  is  under  the  direction  of  an  officer 
familiar  with  all  the  matters  that  must  be  taken  into  con- 
sideration in  taxing  justly.  A  multiplicity  of  rights  in 
the  nature  of  land  tenures  are  recognised  in  the  assess- 
ments, and  heed  is  also  paid  to  the  character  of  the  lands 
and  the  purposes  to  which  they  are  devoted.  No  increase 
of  rent  is  ever  allowed  upon  improvements  made  by  the 
tenant  himself,  or  upon  improvements  arising  from  the 
expenditure  of  public  money ;  so  that,  in  the  opinion  of 
those  who  have  given  personal  attention  and  study  to  this 
subject,  the  English  officials  have  finally  established  a  land 
revenue  system  in  India  on  a  just  basis. 

The  expense  of  collecting  the  land  tax  is  heavy.  In 
the  so-called  "  village  assessments  "  the  collection  is  made 
by  the  local  authorities.  In  other  cases  the  large  pro- 
prietors and  notables  pay  the  Government  levies  and  re- 
coup themselves  by  including  their  payments  in  the 
rents  charged  to  their  subtenants — the  ryots,  or  peasantry. 
While  the  revenues  from  this  source  are  very  reliable,  they 
are  not  regarded  as  capable  of  much  further  expansion. 


THE   INDIAN   TAX   ON  SALT.  165 

The  gross  receipts — imperial,  provincial,  and  local — from 
the  annual  rental  of  tax  on  land  in  all  India  was  officially 
returned  for  1893-'94  at  25,589,600  Rx.  (or  about  $123,- 
000,000),  representing  an  average  rent  or  tax  of  $1.53  per 
acre.  About  nine  tenths  of  the  entire  population  of  India 
belong  to  the  agricultural  class. 

Second  in  order  of  importance  of  the  sources  of  Indian 
revenue  is  the  tax  on  salt,  which,  since  its  discontinuance 
in  France  in  1789,  has  ceased  to  be  an  excise  or  internal 
tax  in  European  countries,  with  the  exception  of  Italy, 
and  which  finds  its  warrant  and  Justification  at  the  pres- 
ent time  in  India  in  the  fact  that,  apart  from  the  land 
tax,  there  is  no  other  method  so  practical  and  economic 
of  compelling  the  masses  of  its  people  to  directly  con- 
tribute anything  for  the  support  of  the  Government,  in- 
asmuch as  the  consumption  of  salt  is  a  necessity  for  every 
individual.  A  very  large  proportion  of  the  salt  required 
for  Indian  consumption  is  imported — chiefly  from  Eng- 
land— and  the  total  amount  on  which  taxes  are  collected 
is  about  500,000  tons,  or  3,000,000  barrels.  The  rate  of 
tax  is  two  and  a  half  silver  rupees  (nominally  $1)  per 
maund  of  82.28  pounds.  Previous  to  1879-'80  the  Gov- 
ernment maintained,  at  great  expense  and  popular  annoy- 
ance, a  customs  line  twenty-five  hundred  miles  in  length, 
to  keep  salt  produced  in  the  states  under  native  rule  from 
entering  into  British  territory  without  the  payment  of  a 
heavy  duty.  This  barbarous  system,  necessitating  the  con- 
stant employment  of  a  large  force  of  native  constables, 
known  as  chuprassies,  invested  with  inquisitorial  powers, 
was  abolished  at  the  time  above  named,  by  entering  into 
treaties  with  the  native  states  possessing  salt  sources,  in 
virtue  of  which  British  officials  are  permitted  to  supervise 
their  salt  works  and  tax  their  product  before  it  left  them. 
But  this  could  be  only  accomplished  by  paying  the  states 
concerned  a  satisfactory  compensation  for  this  concession. 
The  receipts  of  the  imperial  (Indian)  revenue  from  the 
salt  tax  for  1894  were  8,228,000  Rx.  (tens  of  rupees),  or 
nominally  about  $41,000,000.  The  present  average  annual 
consumption  of  tax-paid  salt  by  the  people  of  India  has  been 
officially  estimated  at  about  ten  and  three  fourths  pounds 
per  head,  and  the  average  annual  burden  of  the  tax  on 
each  Indian  family  of  five  persons  at  one  rupee  and  a  quar- 


166     THE   THEORY   AND   PRACTICE   OF   TAXATION. 

ter,  or  od.  (ten  cents);  and  in  considering  this  tax  it  is 
desirable  to  bear  in  mind  that  there  is  no  direct  taxation 
in  India  either  on  tobacco  or  sugar,  so  that  the  salt  tax  is 
the  only  direct  tax  that  the  Indian  peasant  need  pay, 
unless  he  indulges  in  alcohol  or  narcotics — the  land  assess- 
ment being  regarded  as  in  the  nature  of  rent. 

As  the  price  of  salt,  by  reason  of  the  tax,  is  somewhat 
higher  in  India  than  in  most  other  countries,  the  ques- 
tion as  to  its  effect  upon  its  population  is  one  of  high 
social  and  sanitary  interest,  in  respect  to  which  authorities 
differ.  By  some  *  it  is  contended  that  the  consumption 
of  this  prime  necessity  is  thereby  greatly  restricted,  and 
that  much  disease,  both  of  men  and  animals,  is  thereby 
engendered;  and  the  trade  in  salt  fish,  which  might  sup- 
ply a  cheap  and  abundant  article  of  food,  is  greatly  ham- 
pered. Others  assert  that  "  the  poorer  classes  do  not  feel 
aggrieved  or  complain  about  it  ";  that  "  as  a  rule  the  peas- 
antry do  not  stint  themselves  on  account  of  it " ;  and  that 
"  no  one  has  ever  taken  exception  to  the  tax  as  it  stands 
but  the  European  grievance-monger  in  the  country."  But, 
be  this  as  it  may,  all  are  agreed  that  it  would  be  very  diffi- 
cult to  raise  a  revenue  equivalent  to  that  derived  from 
the  taxation  of  salt  by  any  other  method. 

The  third  largest  source  of  imperial  revenue  in  India 
is  from  the  Government  monopoly  of  the  production  and 
sale  of  opium;  and  the  annual  receipts  from  which,  al- 
though at  one  time  in  excess  of  $40,000,000,  have  of  late 
years  greatly  diminished,  and  were  officiallv  reported  in 
1894  as  6,627,571  Ex.  ($33,137,855).  As  the  opium  prod- 
uct of  India  is  sold  mainly  to  China  and  the  Straits  Set- 
tlements, and  as  the  export  taxes  embodied  in  its  price 
are  collected  from  the  people  of  these  countries,  they  can 
not,  therefore,  be  regarded  as  a  fiscal  burden  upon  the 
people  of  India. 

The  method  of  collecting  the  revenue  from  opium  is 
substantially  as  follows:  No  person  in  British  India  may 
cultivate  the  poppy,  from  which  the  drug  is  derived,  with- 
out a  license  from  the  Government;  and  every  cultivator 
is  bound  to  sell  the  crude  product  of  his  crop  to  the  Gov- 

*  Wilson's    Resources    of    Modern    Countries.      London,    Long- 
mans, 1878. 


OPIUM  AND  EXCISE   IN  INDIA.  167 

ernment  at  certain  factories,  where  it  is  manufactured  into 
the  opium  of  commerce.  A  portion  of  the  manufactured 
opium  is  retained  for  consumption  in  India,  and  distrib- 
uted through  venders  licensed  by  the  excise  department. 
The  remainder  is  sold  monthly  by  auction  to  merchants, 
who  export  it;  and  on  this  exportation  a  duty  is  levied, 
from  which  the  imperial  revenue  from  this  source  mainly 
accrues.  Opium  produced  in  the  native  states  of  India 
pays  the  export  duties  when  it  passes  into  British  territory. 
The  Government  prescribes  rules  for  the  cultivation  of 
the  poppy,  and  the  manufacture,  possession,  transport,  im- 
port (from  native  states)  or  export,  and  sale  of  opium;  and 
any  contravention  of  such  rules  is  subject  to  stringent  pen- 
alties. The  product  of  the  poppy  illegally  cultivated  and 
opium  made  the  subject  of  an  offence  against  the  law  are 
liable  to  confiscation,  together  with  the  vessels  and  pack- 
ages in  which  it  is  found  and  the  animals  and  conveyances 
used  in  transporting  it.  Notwithstanding  all  these  pre- 
cautions, the  price  of  opium  consumed  in  the  country — 
about  one-eleventh  part  of  the  whole — is  more  or  less  in- 
fluenced by  illicit  supplies;  so  that  the  Government  monop- 
oly of  this  article  is  fully  effective  only  in  respect  to  the 
export  trade.  But  even  under  such  conditions,  opium  is 
the  most  valuable  of  all  the  native  exports  of  India ;  and  the 
annual  value  of  the  poppy  crop,  including  the  poppy  seeds 
and  the  poppy  oil  produced  from  them  (neither  of  which 
yield  opium),  or  the  annual  money  return,  apart  from  the 
Government  revenue,  that  the  people  of  India  get  out  of 
the  crop,  is  estimated  at  about  $70,000,000. 

The  fourth  source  in  order  of  importance  of  the  In- 
dian revenue  is  from  the  so-called  excise,  which  embraces 
licenses  and  distillery  fees,  licenses  for  the  sale  of  liquors 
and  drugs,  and  rent  of  "Toddy"  trees— 364,624  Ex. 
($1,722,120)  in  1894;  duty  on  opium  consumed  in  India — 
732,200  Ex.  ($3,661,000)  in  1894;  fines,  confiscations,  and 
miscellaneous;  total  excise  revenue  for  1894,  5,388,573  Ex. 
($26,942,865).  The  incidence  of  this  form  of  taxation 
falls  mainly  upon  Europeans  and  "  Eurasians  "  (a  modern 
name  given  to  persons  of  mixed  European  and  Indian 
blood).  In  this  connection,  the  Imperial  Secretary  for 
India,  in  his  budget  speech  (1894),  stated  that,  "whereas 
in  England  there  was  a  licensed  shop  to  sell  intoxicating 


168     THE   THEORY   AND   PRACTICE   OF   TAXATION. 

liquors  to  every  106  of  the  population,  in  India  there  was 
only  one  for  selling  liquor  and  opium  to  every  2,148  of  the 
population." 

Fifth.  The  stamp  system  of  taxation  in  India  yielded 
a  revenue  in  1894  of  4,509,355  Ex.,  or  $33,546,665.  Al- 
though somewhat  heavy  in  the  aggregate,  the  system  is 
not  unpopular,  for  the  reason  that  it  is  practically  un- 
known to  the  mass  of  the  people;  the  largest  items  of  col- 
lection being  returned,  in  1894,  under  the  heads  of  "  court 
fee  stamps"  ($15,317,315)  and  "commercial  and  other 
stamps  "  ($5,841,995). 

Sixth.  "  Provincial  rates."  Under  this  title  are  in- 
cluded a  variety  of  levies,  differing  in  name,  character, 
and  rate  in  different  places,  and  for  the  furtherance  of 
special  objects — as  for  paying  the  expenses  of  hospitals, 
schools,  and  police  service;  for  the  maintenance  and  con- 
struction of  roads  and  irrigating  facilities,  the  adminis- 
tration of  wards'  estates,  and  the  like.  The  revenue  re- 
ported from  this  source  in  1894  was  3,514,571  Ex.  ($17,- 
573,855). 

Seventh.  Until  within  a  very  recent  period  (1894)  the 
customs  system  of  India — taxes  on  imports  and  exports — 
was  one  of  the  simplest  in  the  world.  No  other  coun- 
try than  the  United  Kingdom  imposed  duties  on  so  few 
descriptions  of  merchandise — mainly  on  alcoholic  liquors, 
salt,  mineral  oils,  arms,  ammunition,  and  a  few  spe- 
cial articles  of  food  and  drink.  Export  duties  were  also 
levied  on  rice  and  some  other  forms  of  grain.  The  ag- 
gregate receipts  from  customs  fees,  wharf  rents,  etc.,  in 
1894,  were  1,683,373  Ex.  ($8,411,865).  In  March,  1894— 
the  commencement  of  the  Indian  fiscal  year — the  Council 
of  India,  acting  under  the  constraint  of  financial  exigen- 
cies, imposed  duties  on  almost  all  kinds  of  imports,  cotton 
yarns  and  piece  goods — constituting  about  one  third  in 
value  of  the  entire  imports  by  sea — excepted.  Subse- 
quently a  uniform  duty,  equivalent  to  three  and  a  half  per 
cent  ad  valorem,  was  imposed  on  all  imported  cotton  goods, 
and  a  corresponding  excise  tax  on  all  the  competing  prod- 
ucts of  Indian  mills — yarns  and  other  cotton  fabrics,  the 
product  of  Indian  hand  labour,  being  exempted.  "  Ex- 
cept the  weaving  of  fancy  and  highly  elaborated  clothing, 
which  is  largely  conducted  in  and  around  Benares  and  in 


INCOME  TAX  IN  INDIA.  169 

a  few  other  districts,  the  handloom  manufacture  of  cotton 
in  India  is  mainly  a  spare-time  industry,  and  is  not  pro- 
fessional." 

Other  important  sources  of  internal  revenue  in  India 
are  the  receipts  from  the  sale  of  the  products  of  the  for- 
ests owned  or  managed  by  the  Government — in  the  form 
of  timber,  firewood  and  charcoal,  bamboos,  sandalwood, 
grass,  and  other  products — the  total  of  which  for  1894 
was  1,723,022  Rx.  ($8,615,110). 

An  annual  tribute  or  contribution  from  a  large  num- 
ber of  native  and  mainly  petty  states  of  India  toward  the 
support  of  the  Imperial  Government  v/as  reported  for  1894 
at  774,337  Rx.  ($3,871,685).  On  the  other  hand,  the 
Imperial  Government  grants  annual  allowances,  or  pen- 
sions, to  the  native  hereditary  rulers  of  such  states  or  their 
families,  the  aggregate  of  which  for  the  fiscal  year  1894 
was  508,443  Rx.  ($2,542,215).* 

Income  Tax. — The  experience  of  the  (British)  Indian 
Government  in  attempting  to  raise  revenue  from  the  tax- 
ation of  incomes,  or  by  an  income  tax,  is  exceedingly  in- 
teresting, and  ought  to  be  most  instructive  to  the  people 
of  other  countries.  As  a  rule,  the  annual  revenues  of  the 
Government  of  India  do  not  and  for  a  lengthened  period 
have  not  equalled  its  annual  expenditures,  and  the  in- 
crease in  the  public  debt  of  the  country  in  recent  years 
has  accordingly  been  very  considerable,  f  The  major  part 
of  this  debt,  however,  has  been  incurred  for  the  construc- 
tion of  ordinary  roads  and  railways,  which  in  turn  have 
not  been  unremunerative,  and  have  made  possible  a  large 
export  sale  of  wheat  and  other  commodities,  which  before 
their  construction  was  impossible.  The  debt,  or  expendi- 
tures resulting  in  debt,  has  therefore  contributed  greatly 

*  The  British  Government  has  respected  the  possessions  of  the 
native  chiefs  of  India,  and  about  one  third  of  the  country  still 
nominally  remains  in  the  hands  of  its  hereditary  rulers.  These,  in 
return  for  their  maintenance  and  protection  by  the  Imperial  Gov- 
ernment of  India,  contribute  annually  from  their  resources  a  com- 
paratively small  simi  for  its  support.  The  independent  gross  an- 
nual revenue  of  these  so-called  "  feudatory  "  states  is  reported  to 
amount  to  about  £6,000,000  ($30,000,000),  and  their  permanent 
military  forces  at  "  something  like  300,000." 

t  For  the  year  which  closed  on  March  31,  1896,  there  was  an 
estimated  surplus  of  about  9,500,000  rupees. 
13 


170    THE   THEORY   AND   PRACTICE   OF   TAXATION. 

to  the  welfare  of  the  people  of  India.  At  the  same  time 
the  demand  and  necessity  for  constantly  increasing  ex- 
penditures, continually  confront  the  Government  with  the 
most  difficult  problem  of  how  to  increase  its  revenue — a 
problem  that  very  recently  has  been  threatened  with  in- 
creasing embarrassment,  owing  to  the  position  of  not  a 
few  people  in  England,  who,  with  more  of  sentiment  than 
discretion  or  knowledge,  have  opposed  the  continuance  of 
the  present  governmental  monopoly  of  the  production  and 
sale  of  opium.  A  large  increase  of  taxation  in  any  form 
is  regarded  as  not  feasible  in  India;  not  so  much  because 
of  an  unwillingness  on  the  part  of  the  people  to  pay — for 
they  are  accustomed  to  pay  all  dues  which  they  regard  as 
fairly  claimable  by  the  sovereign  power,  and  more  espe- 
cially when  the  demand  is  accompanied  •with,  control  of 
force — but  by  reason  of  the  extreme  poverty  and  conse- 
quent actual  inability  of  the  masses  of  the  people  to  pay. 
Experience  has,  moreover,  shown  that  the  natives  of  India 
are  particularly  opposed  to  all  forms  of  direct  taxation, 
other  than  on  land,  and  more  especially  to  taxes  on  houses, 
vehicles,  and  trades;  and  so  extreme  are  their  prejudices 
in  this  respect  that  any  new  levies  of  such  character  are 
only  imposed  by  the  Government  with  the  greatest  caution. 

Something  in  the  way  of  an  income  tax,  exempting  all 
incomes  derived  from  agriculture,  was  probably  imposed 
by  some  of  the  old-time  native  rulers  of  India.  But  the  first 
attempt  on  the  part  of  the  British  Legislative  Council  of 
India  to  revive  such  a  form  of  direct  taxation  w^as  made  in 
1860.  What  followed  is  thus  forcibly  set  forth  in  a  speech 
by  Mr.  Hope,  before  the  Council,  in  January,  1886 : 

"  Instead  of  a  native  model  for  direct  taxation,  soft- 
ened and  adapted  to  our  circumstances,  we  unfortunately 
set  up  that  of  the  income  tax  as  it  was  in  force  in  England. 
To  get  direct  taxation  into  good  working  order,  even  after 
a  suitable  model,  would  have  been  a  work  of  time  and  care, 
in  the  absence  of  any  record  of  the  names  and  resources 
of  householders.  But  what,  except  failure,  could  attend 
a  sudden  call  on  relatively  ignorant  and  unlettered  mil- 
lions, at  short  notice,  to  assess  themselves,  or  prove  right 
of  exemption,  to  send  in  elaborate  returns  and  calculations, 
and  to  understand  and  watch  their  own  interests  under 
the  system  of  notices,  surcharges,  claims,  abatements,  in- 


INCOME-TAX   ASSESSMENTS.  171 

stalments,  penalties,  and  what  not,  consequent  thereon? 
Necessarily  there  followed  a  long  train  of  evils.  An  army 
of  tax  assessors  and  collectors  temporarily  engaged  could 
not  be  pure.  They  were  aided  by  an  army  of  informers, 
actuated  by  direct  gain  or  private  animosity.  Frauds  in 
assessment  and  collection  went  hand  in  hand  with  extor- 
tion in  return  for  real  or  supposed  exemption.  Inquisi- 
tion into  private  affairs,  fabrication  of  false  accounts  where 
true  ones  did  not  exist  or  were  inconvenient,  acceptance 
of  false  returns,  rejection  of  honest  ones,  unequal  treat- 
ment of  the  similarly  circumstanced — all  these  more  or 
less  prevailed.  The  tax  reached  numbers  not  really  liable, 
for  zemindars  illegally  recovered  it  from  tenants  and  mas- 
ters from  servants,  while  underlings  enriched  themselves 
by  the  threat  of  a  summons. 

"  Subsequent  acts  in  1863,  while  affording  relief  in 
some  respects,  practically  stereotyped  many  inequalities 
and  heartburnings.  In  later  years,  the  system  of  assess- 
ment by  broad  classes  was  an  improvement  on  the  earlier 
complications,  but  the  advance  of  local  officers  toward 
equitable  assessment  was  perpetually  being  cancelled  by 
the  alterations  in  rate  and  liability,  which  I  next  notice. 

"  Eenewed  direct  taxation  in  British  India  thus  made 
a  false  start,  from  which  it  has  never  recovered.  Possibly, 
with  time  and  care,  a  great  improvement  might  have  been 
effected,  if  the  law  had  remained  unaltered.  But,  un- 
luckily, with  its  too  English  form  came  the  idea  that  the 
tax  was  to  be,  as  in  England,  a  convenient  means  of  recti- 
fying budget  inequalities,  and  a  great  reserve  in  every 
financial  or  national  emergency.  In  consequence  of  this 
idea,  incomes  between  Es.  200  and  Es.  500,  which  had 
been  taxed  at  two  per  cent  in  1860,  were  exempted  in  1862, 
the  four-per-cent  rate  was  reduced  to  three  per  cent  in 
1863,  and  the  whole  tax  was  dropped  in  1865.  In  1867 
it  reappeared  in  the  modified  form  of  a  license  tax,  at  the 
rate  of  only  two  per  cent  at  most,  but  reaching  down  again 
to  incomes  of  Es.  200.  In  1868  it  became  a  certificate  tax 
at  rates  a  fifth  lower,  and  again  commencing  with  a  Es. 
500  limit.  In  1869  it  became  once  more  a  full-blown  in- 
come tax  at  one  per  cent  on  all  incomes  and  profits  of  Es. 
500  and  upward.  In  the  middle  of  the  same  year  it  was 
suddenly  nearly  doubled.     In  1870  a  further  rise  to  fully 


172     THE   THEORY   AND   PRACTICE  OF   TAXATION. 

three  and  an  eighth  per  cent  occurred ;  but  with  better 
times  the  rate  fell  in  1871  to  one  and  one-twenty-fourth 
per  cent,  with  a  limit  of  Rs.  750,  and  in  1872  the  limit 
was  further  relaxed  to  Rs.  1,000  and  upward.  In  1873 
came  a  second  period  of  total  abolition,  to  be  succeeded 
from  1877  to  1878  by  the  new  series  of  acts.  Along  with 
the  changes  in  rate  and  incidence  just  described  came 
changes  in  name,  form,  classification,  and  procedure.  With 
one  object  or  another,  twenty-three  acts  on  the  subject 
have  been  passed  since  1860." 

An  income  tax  at  a  low  rate,  at  present  existing  in 
India,  grants  an  exemption  of  500  rupees  on  all  incomes, 
and  exempts  from  taxation  all  income  from  the  ownership 
of  land  or  the  sale  of  the  products  of  land,  and  from  prop- 
erty solely  employed  for  religious  or  charitable  purposes. 
It  is  thus  assessable  mainly  on  salaries,  pensions,  the  in- 
come of  companies,  and  of  the  ordinary  trades  and  profes- 
sions. Its  existence  is  the  cause  of  considerable  friction 
with  the  officials  who  administer  it,  and  constant  appeals 
from  their  decisions  are  made  from  all  parts  of  the  coun- 
try. In  fact,  this  tax,  at  its  present  low  rate,  is  universally 
detested,  and  the  receipts  from  it  are  comparatively  so 
inconsiderable— only  1,717,627  Rx.  ($8,588,135)  in  1894 
— that  it  may  be  regarded  as  a  fiscal  failure.  Its  whole  ex- 
perience in  India  furthermore  reaffirms  what  is  worthy  of 
being  regarded  as  an  economic  principle,  namely,  that 
when  an  income  tax  ceases  to  be  regarded  as  generally  op- 
pressive it  ceases  also  to  be  remunerative  to  the  state. 

One  other  point  in  this  connection  is  especially  worthy 
of  notice.  For  a  long  period  of  years  India  has  been  char- 
acterized as  a  "  sink-hole  "  of  the  precious  metals,  or,  in 
other  words,  there  has  been  for  many  years  a  continuous 
flow  of  the  precious  metals — gold  and  silver — into  India, 
where  they  have  to  a  large  extent  disappeared,  by  burial 
under  ground  for  the  purpose  of  hoarding  and  conceal- 
ment.* The  motive  for  this  under  the  Mogul  and  native 
rulers  was  unquestionably  to  escape  direct  plunder  or  con- 
fiscation ;  but  under  British  rule  these  hoards,  amounting 
to  many  hundreds  of  millions,  are  not  taxed,  mainly  by 

*  While  this  is  still  true  in  a  measure  as  to  silver,  the  move- 
ment of  gold  in  India's  commerce  has  undergone  a  change.     The 


BURDEN  OF  INDIAN  TAXATION. 


173 


reason  of  their  inaccessibility,  and  partly  by  the  recog- 
nised policy  of  the  Government  to  avoid  direct  taxation 
of  active  capital,  and  encourage,  by  making  safe  its  em- 
ployment, the  tendency  of  these  buried  treasures  to  come 
to  light  and  enter  into  the  channels  of  trade.  And  that  this 
policy  has  been  a  wise  one  is  shown  by  the  fact  that  within 
recent  years  there  has  been  an  increasing  disposition  on 
the  part  of  the  Indian  owners  of  concealed  treasures — espe- 
cially the  Indian  princes  or  rajahs — to  withdraw  them 
from  their  hoarding  places  and  invest  them  in  Govern- 
ment bonds,  or  other  desirable,  interest-bearing  securities. 
In  the  year  1893  the  burden  of  taxation  on  the  people 
of  India,  inclusive  of  the  revenue  derived  from  the  rent  of 
land,  was  officially  estimated  at  two  rupees  and  four  annas, 
or  nominally  less  than  fifty  cents  per  head;  or,  exclusive 
of  the  revenue  from  land,  at  about  twenty-three  cents  per 
head — a  rate  relatively  much  lower  than  the  taxation  of 
England;  so  that,  if  the  taxable  ability  of  the  people  of 
India  is  low,  the  poorer  classes  of  that  country,  it  is 
claimed,  are  more  lightly  taxed  than  the  poorer  classes  of 
Europe,  or  even  of  the  United  States.  Before  England 
assumed  dominion  in  India  the  system  of  exaction  of  her 


imports  and   exports  of  treasure,  on  private  and  government  ac- 
count, have  been  as  follows  (in  tens  of  rupees) : 


GOLD. 

SILVER. 

YEAR. 

Import. 

Export. 

Import. 

Export. 

1886-'87 

1887-'88 

1888-89    

1889-90 

1890-91 

1891-'92 

1892-93 

1893-'94 

1894-'95 

1895-'96 

1896-'97 

2.833,558 
3.236.053 
3.119.088 
5.071.027 
6.500.832 
4,118.929 
1,781.789 
3.146.530 
1.756.280 
5.028.269 
4,491,179 

656,493 

243.572 

305.154 

455,724 

864,660 

1.705.137 

4.594.472 

2.505.284 

6.730.374 

2.503.317 

2.200,141 

8.219.761 

10.589.803 

10.725.872 

12.388.474 

15.433.654 

10.603.733 

15.228.021 

15.314.726 

7.824.927 

8,338,716 

8,593,384 

1.064.023 
1.361.053 
1,479,193 
1,450.598 
1,258,518 
1,581,549 
2.364.452 
1.594.908 
1,495,698 
1.756.494 
2,737,355 

It  was  believed  by  many  that  the  clo.sing  of  the  mints  to  silver 
would  attract  gold  to  India ;  but  this  has  not  been  the  event.  A 
commission  of  the  English  Parliament  on  Indian  currency  has  re- 
cently (1899)  presented  a  report  in  favour  of  the  gold  standard. 


174    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

native  rulers  was  so  perfected  that  they  were  assured  of  the 
very  last  penny  that  could  be  taken  from  the  ryots,  or 
peasantry,  without  stripping  them  of  everything;  leaving 
to  the  tenant  class  little  more  than  the  privilege  of  living. 
To-day  the  existing  system  of  taxation  in  India  is  con- 
ceded to  be  at  least  eminently  just.  To-day  it  is  generally 
admitted  that  there  is  no  government  in  the  world  whose 
administration  is  more  honestly  conducted,  and  which  is 
now  doing  more  for  the  material  good  of  the  governed,  than 
the  present  British  Government  of  India.  And  herein  is 
to  be  found  the  secret  of  England's  success  in  ruling  the 
vast  congeries  of  people  of  different  races,  languages,  and 
religions,  known  to  i;s  as  India. 

The  consideration  of  another  matter  of  recent  occur- 
rence and  of  the  highest  economic  and  social  interest  and 
importance,  appropriately  finds  place  in  any  discussion  of 
the  tax  system  of  British  India ;  more  especially  because 
it  sets  forth  an  attempt,  founded  on  an  unwarranted  senti- 
ment, indirectly  to  impose  a  large  additional  burden  of 
taxation  on  the  people  of  that  country.  As  already  pointed 
out,  a  present  annual  receipt  of  some  $33,000,000  of  reve- 
nue from  the  monopoly  of  the  production  and  sale  of 
opium,  the  incidence  of  which  does  not  fall  upon  the  In- 
dian people,  constitutes  an  important  factor  in  this  system. 
Acting  on  the  assumption  that  the  continued  use  of  this 
drug,  as  a  narcotic  and  stimulant,  is  in  the  highest  degree 
injurious  to  the  consumer — worse  even  than  the  continued 
use  of  alcohol — and  especially  demoralizing  and  destructive 
to  the  people  of  China,  who  are  the  purchasers  and  con- 
sumers of  the  major  part  of  the  opium  product  of  India, 
a  body  of  public  opinion  has  in  recent  years  grown  up  in 
Great  Britain  whose  representatives  hold  that  it  was  dis- 
graceful and  positively  wicked  for  a  people  professing  to 
be  moral  and  enlightened  to  engage  in  or  sanction  the 
business  of  producing  and  supplying  opium;  and  that  it 
is  the  duty  of  their  Government  to  at  once  interfere  and 
put  an  end  to  it.  And  in  recognition  of  this  public  opin- 
ion, and  in  deference  to  a  numerously  signed  address  to 
the  Crown,  the  British  Government,  in  September,  1893, 
created  a  commission,  consisting  of  nine  eminently  quali- 
fied persons,  including  two  natives  of  India  of  high  posi- 
tion and  unconnected  with  the  Government,  and  an  emi- 


THE  OPIUM   COMMISSION.  1Y5 

nent  physician,  to  inquire  into  and  fully  report  on  this 
whole  subject.  The  first  report  of  the  commission,  pub- 
lished in  1894  and  presenting  simply  the  evidence  taken 
in  England,  was  an  exhibit  of  the  most  interesting  but 
utterly  antagonistic  and  contradictory  opinions  and  evi- 
dence. For  the  petitioners,  sixteen  witnesses,  mainly  mis- 
sionaries, medical  men  connected  with  missions  and  resi- 
dents for  considerable  periods  in  India  and  China,  were 
called;  and  nearly  all  of  these,  as  the  result  of  personal 
experience  and  observation,  testified  in  the  most  positive 
manner,  and  in  consonance  with  popular  opinion,  that  the 
use  of  opium  physically,  morally,  and  socially  is  highly 
deleterious,  and  ought  to  be  discouraged,  and  if  possible 
absolutely  prevented.  Considered  by  itself  this  testimony 
would  seem  to  be  conclusive  and  incapable  of  refutation. 
But,  on  the  other  hand,  an  equal  number  of  witnesses — 
English  officials  qualified  by  education,  lengthened  resi- 
dence in  India  and  China,  and  exceptional  opportunities 
for  observation,  civil  servants,  medical  men  of  the  highest 
reputation  connected  with  hospital  and  sanitary  work  and 
with  the  army  in  every  part  of  India — gave  unqualifiedly 
contradictory  evidence,  which  may  be  summed  up  as  fol- 
lows :  That  opium  has  been  used  for  centuries  in  India  and 
China,  without  any  extensive  deleterious  influence  on  the 
population ;  that  the  "  Sikhs  "  of  India,  who  in  point  of 
physical  structure  and  health  are  claimed  to  be  the  finest 
people  in  the  world,  and  whose  religion  forbids  the  use 
of  tobacco,  are  habitual  users  of  it ;  that  while  the  excessive 
use  of  opium  is  unquestionably  in  a  high  degree  deleterious, 
it  is  far  less  so  than  the  excessive  use  of  alcohol ;  that  the  use 
of  opium  in  India  and  China  is  comparatively  much  less 
than  the  use  of  ardent  spirits  in  Great  Britain ;  that  the  ex- 
cessive use  of  it,  as  by  the  so-called  "  opium  sot,"  is  the  re- 
sult very  largely  of  the  circumstance  that  the  miserably 
poor  afflicted  with  disease  in  India,  China,  and  other  Asiatic 
countries  where  there  is  no  intelligent  medical  treatment, 
and  little  or  no  hospital  service,  resort  to  it  as  the  only 
means  of  lessening  their  sufferings;  that  so  far  from  the 
allegation  being  true  that  the  supply  of  opium  by  India 
to  China  is  disastrous  in  the  highest  degree  to  the  people 
of  the  latter  country,  the  fact  is  that  the  use  of  the  Indian 
product,  owing  to  its  higher  quality  and  price,  is  almost 


176    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

wholly  restricted  to  the  wealthier  classes  of  China;  that 
the  c-ultivation  of  the  poppy  for  the  production  of  opium 
is  very  general  in  China,  and  to  such  an  extent  that  one 
single  province  of  the  empire  annually  produces  more 
opium  than  the  entire  export  of  India;  and,  finally,  that 
any  attempt  on  the  part  of  either  the  Indian  or  Chinese 
Government  to  interfere  with  the  production  and  sale  of 
opium,  with  a  view  of  restricting  or  preventing  its  con- 
sumption, would  be  utterly  futile,  and  in  the  case  of  the 
former  country  would  undoubtedly  lead  to  revolution. 

One  witness,  Surgeon-General  Sir  William  Moore, 
stated  as  the  result  of  thirty-three  years'  service  and  ob- 
servation in  India,  that  opium-smoking  is  practically 
harmless,  and  opium  water  not  only  harmless,  but  bene- 
ficial in  moderation,  and  a  prophylactic  against  malarial 
fever. 

The  following  circumstance  was  also  regarded  as  sub- 
stantiating this  position:  During  the  years  1893-'94  the 
island  of  Hong-Kong,  on  the  Chinese  coast,  was  ravaged 
by  a  pestilence,  in  the  nature  of  a  filth  disease,  of  great 
malignity.  Since  its  abatement  it  is  claimed,  with  an  ac- 
companying array  of  evidence,  that  the  opium  smokers 
and  eaters  were  almost  without  exception  exempted  from 
the  pest. 

Very  naturally,  also,  the  (British)  Indian  civil-service 
officials,  holding  the  view  that  the  large  revenue  derived  by 
the  Government  from  the  monopoly  of  the  production  and 
sale  of  opium  is  in  no  sense  a  tax  burden  upon  the  Indian 
people;  and  recognising  also  the  great  difficulty  (but  abso- 
lute necessity)  of  making  good  the  deficiency  consequent 
upon  the  abrogation  of  such  revenue  through  new  and  addi- 
tional taxation  upon  the  people,  were  unanimously  of  the 
opinion  that  any  change  in  the  existing  system  in  respect 
to  opium  would  be  in  the  highest  degree  inexpedient  and 
unwarranted.  When  the  question  was  put  to  Sir  John 
Strachey,  who  in  the  course  of  thirty-eight  years  of  Indian 
civil  service  has  filled  almost  every  post,  from  the  most 
subordinate  to  the  governorship  of  provinces  and  member- 
ship of  the  Government  of  India,  how  he  accounted  for  the 
great  contrariety  of  belief  in  respect  to  the  opium  ques- 
tion, he  made  answer  as  follows : 

"  The  ignorance  that  prevails  in  this  country   [Eng- 


FOOD  OF  THE  INDIAN  PEOPLE.  177 

land]  regarding  everything  Indian  is  enormous,  and  is  not 
confined  to  those  whom  we  expect  to  be  ignorant,  but  ex- 
tends to  the  most  highly  educated  classes.  It  extends  to 
all  Indian  subjects — history,  geography,  the  conditions  and 
habits  of  the  people,  the  constitution  of  the  Government 
— in  fact,  everything.  I  will  give  an  illustration  which 
always  seems  to  me  to  have  a  useful  bearing  on  this  opium 
question.  Mr.  Buckle,  in  his  History  of  Civilization,  de- 
rives all  the  distinctive  institutions  of  India  and  the  pecul- 
iarities of  its  people  from  the  fact  that  the  exclusive  food 
of  the  natives  of  India  is  rice.  It  follows  from  this,  he 
tells  us,  that  caste  prevails,  that  oppression  is  rife,  that 
rents  are  high,  and  that  customs  and  laws  are  stereotyped. 
I  have  no  doubt  that  if  Mr.  Buckle  had  been  asked,  he 
would  have  said  that  the  same  cause  accounted  for  the 
consumption  of  opium  in  India.  I  sometimes  ask  my 
English  friends,  when  they  talk  about  opium,  what  they 
suppose  to  be  the  ordinary  food  of  the  people  of  India. 
The  almost  universal  answer,  perhaps  with  an  air  of  dis- 
pleasure that  they  should  be  asked  such  a  foolish  question, 
is  that  of  course  it  is  rice.  I  believe  that  nine  tenths  of 
the  educated  men  and  women  of  this  country  believe  this 
to  be  true.  When  they  have  not  learned  such  an  elementary 
fact  as  this,  that  throughout  the  greater  part  of  India 
rice  is  no  more  the  ordinary  food  of  the  people  than  it  is 
in  England,  how  can  we  be  surprised  if  they  do  not  know 
the  truth  about  opium?  We  who  have  spent  our  lives  in 
India  are  not  all  fools  or  impostors.  When  I  hear  the 
Government  of  India  charged  with  the  abominable  wicked- 
ness of  poisoning  its  own  subjects,  and  millions  of  Chi- 
nese also,  for  the  sake  of  filthy  lucre,  there  is  only  one 
reason  that  prevents  me  from  being  filled  with  indigna- 
tion, and  that  is  that  I  know  that  these  charges  are  the 
offspring  of  ignorance  alone.  Unfortunately,  this  does  not 
make  them  less  serious,  for,  of  all  enemies  to  human  prog- 
ress, ignorance  is  the  most  formidable,  and  is  especially 
formidable  when,  as  in  this  present  case,  it  is  combined 
with  honest  enthusiasm  and  an  anxious  desire  for  what 
is  right." 

The  commission,  having  finished  its  investigations  in 
England,  visited  India,  and  there  renewed  them  in  nearly 
every  place  of  importance  for  obtaining  information.     It 


178     THE  THEORY  AND   PRACTICE  OF  TAXATION. 

examined  seven  hundred  and  t\vent3'-three  witnesses,  of 
whom  four  hundred  and  sixty-six  were  natives  of  India 
or  China,  including  Government  officials,  planters,  land- 
owners, traders,  members  of  the  professional  classes,  espe- 
cially physicians,  missionaries  of  nearly  every  denomina- 
tion, military  officers  and  private  soldiers,  and  the  chiefs 
and  officials  of  the  native  states. 

As  a  result  of  this  elaborate  inquiry,  the  commission, 
by  a  majority  of  eight  to  one,  pronounced  clearly  and  un- 
hesitatingly in  favour  of  the  maintenance  of  the  existing 
system  of  opium  production  and  sale  of  opium  in  India; 
finding  no  evidence  of  extensive  moral  or  physical  de- 
moralization arising  in  India  from  the  use  of  the  drug, 
or  of  any  desire  on  the  part  of  its  people  or  of  the  Chinese 
Government  to  prohibit  it. 

The  commission  also  decided,  in  respect  to  the  effect  on 
the  finances  of  India  of  a  prohibition  of  the  sale  and  ex- 
port of  opium,  that,  "  taking  into  consideration  the  com- 
pensation payable,  cost  of  the  necessary  preventive  meas- 
ures, and  the  loss  of  revenue  that  would  result  from  a 
policy  of  prohibition,  the  finances  of  India  are  not  in  a 
condition  to  bear  the  losses  that  such  a  policy  would  en- 
tail." 

The  testimony  of  the  missionaries  in  India  before  the 
commission  was  not  unanimous.  That  of  the  members 
of  the  American  Methodist  Episcopal  and  Canadian  Pres- 
byterian commissions,  and  the  representatives  of  the  Pres- 
byterian and  Baptist  missions,  was  in  favour  of  prohibition. 
On  the  other  hand,  the  views  of  the  Episcopal  bishops  and 
clergy  of  Calcutta  and  Lucknow,  and  of  the  Eoman  Catho- 
lic Archbishop  of  Calcutta,  were  adverse  to  prohibition. 
Several  of  the  former,  however,  frankly  admitted  that  the 
evils  of  the  opium  habit,  deplorable  as  they  undoubtedly 
are,  have  been  grossly  exaggerated,  and  the  good  that  it 
accomplishes  has  been  but  little  recognised. 

The  use  of  opium  in  India  and  China  is  as  much  a 
natural  habit  as  the  use  of  alcohol  among  Western  nations. 
It  has  been  practised  in  those  countries  for  centuries,  and 
it  would  seem  impossible  by  legislation,  and  especially  by 
the  legislation  of  an  alien  nation,  to  do  anything  more  than 
control  the  more  manifest  evils  resulting  from  it.  A  policy 
of  rigid  restriction  of  the  use  of  opium  would  unquestion- 


THE  OPIUM  HABIT.  I79 

ably  be  a  substitution  of  the  use  of  opium  by  alcohol;  and 
all  the  evidence  given  before  the  commission  as  to  the  evils 
arising  from  the  opium  habit  showed,  that  as  a  source  of 
social  disorder,  organic  disease,  insanity,  and  suicide,  opium 
is  not  to  be  compared  with  alcohol.* 

*  For  the  full  details  of  this  most  interesting  inquiry,  whether 
regarded  from  an  economic,  social,  or  medical  point  of  view,  refer- 
ence is  made  to  the  First  Report  of  the  Royal  Commission  on 
Opium,  with  minutes  of  evidence  and  appendices,  presented  to 
Parliament  in  1894,  and  to  two  final  reports.  Parts  I  and  II,  with 
historical  appendices,  etc.,  presented  to  Parliament  in  1895,  after 
the  return  of  the  commission  from  its  visit  to  India. 


CHAPTER  VIII. 

TAXATION    IN    SWITZERLAND. 

Any  review  of  the  notable  experiences  of  the  Govern- 
ments of  different  countries  in  raising  revenue  for  their 
maintenance  and  support  would  be  incomplete  if  it  failed 
to  notice  those  of  Switzerland,  where  the  conditions  in- 
volved are,  to  say  the  least,  exceptional,  or  different  in 
many  respects  from  those  of  any  other  government  or 
country.     These  conditions,  stated  briefly,  are  as  follows: 

A  country  of  comparatively  small  area — 15,964:  square 
miles — and  in  one  small  part  uninhabitable  and  practically 
inaccessible,  with  a  population  in  1894  of  about  3,000,000 
(2,986,848).  These  conditions  may  be  best  appreciated 
by  the  following  comparisons :  Of  the  four  countries  that 
are  immediately  contiguous  to  and  bound  Swit2;erland, 
France  has  an  area  of  204,092  square  miles  and  a  popu- 
lation of  38,343,192 ;  Germany,  208,738  square  miles  and 
a  population  of  49,428,470;  Austria-Hungary,  264,264 
square  miles  and  40,810,916  population;  and  Italy,  114,410 
square  miles  and  29,699,785  population.  A  comparison 
with  some  of  the  States  that  in  the  aggregate  constitute 
the  United  States  also  affords  the  following  results:  The 
whole  of  Switzerland  has  about  one  third  of  the  area  of 
the  State  of  New  York  and  one  half  of  its  population ;  one 
sixteenth  of  the  area  of  the  State  of  Texas;  less  than  one 
third  of  the  area  of  the  State  of  Georgia,  etc. 

Of  the  total  area  of  Switzerland,  only  seventy-two  per 
cent,  or  an  area  about  as  large  as  the  States  of  Massachu- 
setts, Connecticut,  and  Rhode  Island  combined,  is  classed 
as  habitable  and  productive;  and  the  soil  of  this  portion 
does  not  yield  sufficient  for  the  support  of  more  than  two 
thirds  of  the  population,  a  large  percentage  of  the  re- 
maining third  finding  employment  and  support  mainly  in 
very  small  industries,  occupying  only  a  family.  The  posi- 
tion taken  by  Switzerland  in  the  trade  and  commerce  of 
180 


FOREIGN  TRADE  OF  SWITZERLAND.  181 

the  world  is  most  remarkable,  especially  when  the  vari- 
ous natural  obstacles  are  considered — such  as  the  absence 
of  raw  material  for  her  industries,  asphalt  being  the  only 
raw  mineral  product  of  which  the  export  exceeds  the  im- 
port— the  costly  and  difficult  means  of  transport,  and  the 
restrictive  customs  established  by  neighbouring  and  bound- 
ing countries.  Thus,  a  comparison  of  the  exports  of  dif- 
ferent countries,  in  proportion  to  their  population,  of 
manufactured  products  to  the  world's  markets,  shows  that 
Switzerland  takes  the  lead  in  respect  to  values;  namely, 
$37  per  capita  per  annum.  Of  other  countries,  the  Nether- 
lands comes  next  to  Switzerland,  with  a  present  annual 
export  valuation  of  manufactured  products  of  $35.60  per 
capita ;  then  England,  $24.60 ;  Belgium,  $23.40  ;  Germany, 
$11.50;  France,  $11;  Sweden,  $7;  Norway,  $4.60;  and, 
finally,  the  United  States,  with  $3.40.  In  respect  to  com- 
parative aggregate  valuations,  Great  Britain  furnished 
nearly  thirty  per  cent  of  such  exportations ;  Germany 
nearly  eighteen  per  cent;  and  France  thirteen  per  cent, 
making  about  sixty  per  cent  for  these  three  countries. 
The  proportionate  valuation  of  the  United  States  for  1894 
was  12.16  per  cent.* 

The  principal  articles  of  Swiss  exportation  are  cotton 
fabrics  (printed  and  embroidered),  silks  (especially  rib- 
bons), food  stuffs,  cheese  and  condensed  milk,  clocks  and 
watches,  machinery  and  carriages,  works  of  art,  mineral 
waters,  straw  goods,  etc. 

The  leading  characteristics  of  the  people  of  Switzerland 
are  the  habits  of  persistent  industry,  the  practice  of  rigid 
economy  (in  great  part  by  reason  of  necessity)  in  their 
expenditures,  a  degree  of  patriotism  that  is  everywhere 
exhibited  and  acknowledged,  and  a  remarkable  diversity 
of  language.  "  Three  tongues  have  existed  side  by  side 
in  Switzerland  for  centuries,  and  their  individuality  is 
recognised  in  the  Federal  Constitution,  by  providing  that 
laws  shall  be  printed  in  all  of  them,  and  that  in  the  dis- 
tribution of  certain  offices  regard  shall  be  paid  to  the  lan- 
guage of  the  people  for  whose  benefit  the  official  serves."  f 

*  Address  of  Theodore  Search,  President  of  the  National  Asso- 
ciation of  American  Manufacturers. 

t  State  and  Federal  Government  in  Switzerland.  By  John 
Martin  Vincent.    Johns  Hopkins  Press,  Baltimore,  1891. 


182     THE   THEORY   AND   PRACTICE   OF   TAXATION. 

Education  is  compulsory;  primary  education  is  free,  and 
the  percentage  of  illiteracy  is  small — almost  nothing. 
Their  standard  of  morality  may  be  indicated  by  the  cir- 
cumstance that  about  five  per  cent  of  the  births  are  re- 
ported as  illegitimate. 

The  present  political  organization  of  Switzerland  close- 
ly resembles  that  of  the  United  States,  but  is  far  better 
entitled  to  the  claim  of  being  free  and  democratic,  and  in 
this  respect  is  probably  typically  superior  to  any  other 
Government  that  exists  or  ever  has  existed.*  Under  the 
present  Constitution,  adopted  in  1874,  and  which  prac- 
tically reaffirmed  previously  existing  conditions,  Switzer- 
land became  a  federated  republic,  whose  proper  and  official 
designation  is  the  "  Helvetic  Confederation,"  consisting  of 
twenty-two  Cantons  or  States;  although  the  division  of 
three  Cantons  into  two  demi-Cantons  makes  the  total  num- 
ber of  federative  units  twenty-five.  The  several  Cantons 
elect  a  Federal  Assembly  (Nationalrath)  and  a  States  Coun- 
cil (StdnderatJb)  in  which  are  vested  the  parliamentary  gov- 
ernment of  the  country.  The  first  consists  of  members 
chosen  every  three  years  in  the  ratio  of  one  for  every  twenty 
thousand  of  the  population,  the  election  being  direct,  with 
the  right  of  participation  by  all  citizens  who  have  attained 
the  age  of  twenty  years.  The  second  is  composed  of  forty- 
four  members,  two  from  each  Canton  irrespective  of  its 
size,  the  mode  of  their  election  and  the  term  of  their  mem- 
bership being  left  exclusively  to  the  respective  Cantons. 
Clergymen  are  disqualified  as  candidates,  though  they  are 
eligible  for  election  to  the  Federal  Assembly.  The  chief 
executive  authority  is  deputed  to  a  Federal  Council 
(Bundesrath)  of  seven  members,  elected  for  three  years 
by  the  Federal  Assembly,  and  who  during  their  term  of 
service  can  not  hold  any  other  office  in  the  Confederation 
or  Cantons,  or  engage  in  any  calling  or  business.      The 

*  "  The  county,  State,  and  Federal  Governments  (of  the  United 
States)  are  not  democracies.  In  form  they  are  quasi-oliparchies 
composed  of  representatives  and  executives,  but  in  fact  they  are 
frequently  complete  oligarchies,  composed  in  part  of  unending 
rings  of  politicians  that  directly  control  the  law  and  the  oflfices, 
and  in  part  of  the  permanent  plutocracy  who  purchase  legisla- 
tion through  the  politicians."  The  Initiative  and  Referendum  in 
Switzerland.  By  J.  W.  Sullivan.  Nationalist  Publishing  Co.,  New 
York,  1893. 


THE   SWISS  CONSTITUTION.  183 

President  and  the  Vice-President  of  the  Federal  Council 
are  the  first  magistrates  of  the  Confederation.  Both  are 
elected  by  the  Federal  Assembly  for  the  term  of  one  year, 
and  are  not  eligible  for  the  same  office  until  after  the 
expiration  of  another  year.  The  salary  of  the  President 
is  three  thousand  dollars  per  annum.  His  prerogatives  are 
very  limited.  He  has  no  rank  in  the  army,  no  power  of 
veto,  or  independently  to  name  any  officials.  He  can  not 
enforce  a  policy,  declare  war,  make  peace,  or  conclude  a 
treaty,  and  the  name  of  their  President  for  any  one  year 
is  even  said  not  to  be  familiar  to  the  mass  of  the  Swiss 
people. 

The  Constitution  of  1874  declares  that  the  Confedera- 
tion has  for  its  object  to  insure  the  independence  of  the 
country  against  foreign  control,  to  preserve  the  tranquility 
and  the  rights  of  the  Cantons,  and  to  increase  their  com- 
mon well-being.  The  Confederation  has  alone  the  right 
to  declare  war  and  conclude  peace,  as  well  as  make  alliances 
and  treaties  with  foreign  states,  especially  commercial 
treaties.  But  the  Cantons  reserve  the  right  of  negotiating 
with  foreign  states  any  treaty  affecting  general  adminis- 
tration, local  intercourse,  and  police,  so  long  as  such 
treaties  contain  nothing  injurious  to  the  Confederation  or 
to  the  rights  of  other  Cantons.  The  Confederation  may 
not  support  a  standing  army,  but  every  male  citizen  be- 
tween twenty-four  and  forty-four  years  of  age  is  bound  to 
military  service  and  drill.  Those  between  the  ages  of 
twenty-four  and  thirty-two  are  designated  as  the  regular 
army,  and  number — officers  and  men — about  a  hundred 
and  twenty-five  thousand ;  those  between  the  ages  of  thirty- 
two  and  forty-four  constitute  the  Landwehr  (militia),  and 
number  about  eighty-four  thousand.  Thus,  while  no  great 
army  seems  to  exist  in  Switzerland,  the  whole  able-bodied 
male  population  of  the  country  can  readily  be  made  into 
an  army.  The  natural  defences  of  the  country  have  been 
utilized  to  the  best  advantage,  and  great  care  has  been  ex- 
pended upon  numerous  defensive  works  on  the  frontiers. 
No  Canton  may  have  more  than  three  hundred  men  under 
arms.  If  disputes  arise  between  Cantons,  they  shall  abstain 
from  all  recourse  to  violence  or  arms,  and  shall  submit 
themselves  to  the  decision  taken  upon  these  disputes  in 
conformity  with  federal  regulations.     That  is  to  say,  in 


184    THE   THEORY   AND   PRACTICE  OF  TAXATION. 

case  of  necessity  the  Federal  Council  summons  the  Assem- 
bly to  act;  or  it  may  demand  the  aid  of  other  Cantons, 
which  are  bound  to  give  it,  or  it  is  authorized  to  raise 
troops  and  employ  them  on  condition  of  immediately  sum- 
moning the  cantonal  councils  if  the  number  of  troops 
raised  should  exceed  two  thousand,  or  if  they  remain  under 
arms  more  than  three  weeks. 

Other  articles  of  the  Constitution  regulate  the  military 
training  and  employment  of  citizens;  the  power  of  the 
Federal  authorities  in  regard  to  public  works;  the  main- 
tenance of  free,  compulsory,  and  non-sectarian  education ; 
the  principles  of  taxation  and  cantonal  tariffs,  consistently 
with  general  free  trade;  the  right  of  domicile;  municipal 
and  communal  rights,  and  the  general  toleration  of  re- 
ligious belief  and  worship.  Nevertheless,  the  Order  of 
Jesuits  and  the  societies  affiliated  therewith  may  not  be 
admitted  into  any  part  of  Switzerland ;  and  all  intervention 
by  their  members  in  the  church  or  in  the  schools  is  for- 
bidden. "  The  exercises  of  the  Salvation  Army  fell  under 
the  laws  of  the  municipalities  against  nuisances ;  the  final 
judicial  decision  in  this  case  being  in  effect  that  while 
persons  of  every  religious  belief  are  free  to  worship  in 
Switzerland,  none  in  so  doing  are  free  seriously  to  annoy 
their  neighbours."  *  Freedom  of  the  press,  of  local  trial, 
and  trial  by  jury  are  also  guaranteed.  Previous  to  1848 
the  different  Cantons  conducted  their  postal  service  by 
different  methods ;  but  since  that  time  its  control  and  man- 
agement, together  with  that  of  the  railway  system  of  the 
country,  have  become  exclusive  functions  of  the  Federal 
Government. 

Attention  is  next  asked  to  the  cantonal  political  organi- 
zation and  government.  Every  Canton  and  demi-Canton 
is  sovereign  and  independent  in  local  affairs  and  in  all 
other  matters  that  are  not  limited  by  the  Federal  Con- 
stitution. In  respect  to  their  forms  of  government,  they 
agree  in  little  else  than  the  claim  and  possession  of  abso- 
lute popular  sovereignty ;  and  difPer  much  in  respect  to 
governmental  organizations  and  methods  of  administra- 
tion. Twenty-two  of  the  twenty-five  Cantons  (states)  are 
divided  into  2,706  communes  (townships)  ;  and  each  com- 

*  J.  B.  Sullivan.    The  Commonwealth  of  Switzerland. 


THE  SWISS   BUDGET.  185 

mune  governs  itself  in  respect  to  all  local  affairs,  so  far 
as  is  consistent  with  cantonal  and  Federal  rights.  "  The 
citizens  of  each  commune  regard  it  as  their  smaller  state, 
and  are  jealous  of  any  interference  by  the  greater  state; 
and  unless  the  interests  of  the  Canton  or  the  Confederation 
are  manifestly  superior  to  those  of  the  locality,  the  com- 
mune is  unwilling  to  part  with  its  administrative  power 
and  jurisdiction  over  its  lands,  forests,  police,  roads, 
schools,  churches,  or  taxes.  In  the  Cantons  in  which 
German  is  the  official  language  (sixteen  in  number)  it  is 
customary  for  the  adult  male  population  to  meet  annually 
in  an  open-air  assembly  in  a  town  market-place  or  on  a 
mountain  side,  and  there  propose,  debate,  and  enact  their 
laws,  and  elect  their  officers  by  universal  vote ;  thus  defer- 
ring to  and  establishing  popular  will  without  resort  to  any 
intermediate  representative  machinery." 

The  question  here  naturally  arises.  How  did  such  a 
nation  or  confederation,  made  up  of  twenty-two  small  states 
differing  from  each  other  in  many  essential  features — re- 
ligious, political,  social,  industrial,  physical,  and  linguistic 
— originate?  A  general  answer,  based  on  a  large  amount 
of  historical  research  and  publications,  is  that  it  was  due 
originally  to  a  dra^dng  to  a  common  centre  of  a  number 
of  small  districts,  from  the  contiguous  monarchies  of  Ger- 
many, France,  and  Italy,  for  common  defence  against  a 
common  foe;  and  hence  also  it  is  not  surprising  that  the 
political  boundaries  of  Switzerland  do  not  follow  the  natu- 
ral configuration  of  the  country. 

The  revenues  of  the  Confederation  or  Federal  Govern- 
ment of  Switzerland  in  1894  were  estimated  at  84,047,312 
francs  ($17,000,000),  and  its  expenditures  at  83,675,000 
francs.  The  various  Cantons  of  Switzerland  have  their 
own  budgets  of  revenue  and  expenditure.  For  1895  their 
combined  budgets  indicated  a  revenue  of  about  78,880,000 
francs  ($15,700,000),  and  an  expenditure  somewhat 
greater,  making  a  nominal  aggregate  of  about  $33,000,000 
to  be  annually  raised  by  some  form  of  popular  contribu- 
tion or  taxation.  As  a  considerable  part  of  the  cantonal 
revenues  is  derived  from  the  proceeds  of  taxes  imposed  and 
collected  by  the  Federal  Government,  and  as  contributions 
are  made  in  turn  to  the  latter  by  the  Cantons,  it  is  not  easy 
to  estimate  the  present  annual  average  per-capita  burden  of 
13 


186    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

taxation  on  the  people  of  Switzerland ;  but,  making  all 
allowances,  it  is  certainly  not  inconsiderable.  Some  years 
since  the  average  tax  burden  on  every  inhabitant  of  the 
Canton  of  Zurich,  the  most  populous  and  richest  of  the 
Swiss  Cantons,  was  reported  at  40.15  francs  ($8).* 

A  further  question  of  interest  and  importance  that  now 
arises  (and  which  constitutes  the  main  subject  for  con- 
sideration in  the  present  chapter  of  this  series)  is.  Under 
what  system  and  by  what  methods  is  this  certainly  large 
average  per-capita  obligation  for  the  maintenance  of  the 
several  governments  of  Switzerland  apportioned  and  col- 
lected? And  as  a  help  to  a  proper  understanding  of  this 
problem  the  foregoing  somewhat  detailed  description  of 
the  nature  and  functions  of  these  governments  has  been 
thought  necessary. 

For  the  Confederation  or  Federal  Government  of 
Switzerland,  which  is  not  allowed  to  levy  direct  taxes,  the 
main  source  of  revenue  is  the  customs  (duties)  on  imports, 
which  are  levied  and  collected  on  the  frontiers  of  the  re- 
public. Originally  the  idea  on  which  it  was  sought  to  base 
the  Swiss  customs  was  to  tax  all  articles  of  commerce  en- 
tering from  foreign  countries  on  a  single  uniform  plan, 
having  regard  solely  to  financial  and  not  to  prohibitive 
or  protective  results;  and  this  same  idea  prevails  at  the 
present  time.  "  Changes  in  the  customs  have  been  made 
in  recent  3'ears  to  correspond  to  new  conditions  or  new 
commercial  relations,  but  the  Government  has  always  kept 
as  near  free  trade  as  good  financiering  would  allow.  The 
system  of  assessment  of  duties  on  imports  differs  from  that 
of  England,  in  that  instead  of  a  few  articles  being  selected 
to  stand  as  much  duty  as  they  will  bear,  a  large  number 
— almost  every  commodity,  in  fact — is  taxed  a  little.  The 
schedule  of  rates  contains  over  eight  hundred  articles  which 
are  subject  to  import  duty."  f 

As  a  rule,  raw  materials  necessary  for  manufactures 
are  admitted  free  of  duty,  and  while  the  principle  of  im- 
posing the  highest  duties  on  luxuries  is  fully  recognised, 

*  The  present  aggregate  of  all  forms  of  taxation  imposed  for 
defraying  all  the  expenditures  of  the  Federal  Government  of  the 
United  States  is  equivalent  to  an  average  of  about  $6,538  per  head 
of  all  its  population. 

t  Vincent  on  the  Government  of  Switzerland. 


THE  ALCOHOL  MONOPOLY.  187 

the  duties  on  articles  of  general  consumption  are  very 
light;  tobacco  paying  from  two  to  four  cents  per  pound, 
tea  about  four  cents,  coffee  one  cent.  Export  duties  are 
levied  upon  a  very  few  articles,  chiefly  on  timber,  live 
stock,  and  certain  raw  materials.  As  recently  as  1848 
each  Canton  imposed  cantonal  tariff  duties  on  imported 
goods,  but  these  have  now  been  abolished,  with  one  curious 
exception,  namely,  that  of  salt.  The  sale  of  this  article 
being  a  monopoly  of  the  state,  whether  its  production  be 
domestic  or  foreign,  but  its  retail  price  being  regulated 
by  each  Canton  for  itself,  the  supervision  of  the  imports 
of  salt  into  each  Canton  becomes  necessary. 

By  a  statute  passed  in  1887  the  manufacture  of  alco- 
holic liquors  was  made  a  state  monopoly.  The  net  proceeds 
of  the  business  as  thus  conducted  are  considerable,  but  the 
entire  net  receipts  are  distributed  among  the  several  Can- 
tons in  proportion  to  their  population.  Smuggling  and 
other  evasions  of  the  law  under  the  new  system  are  acknowl- 
edged to  be  extensive  and  irrepressible,  so  that  the  measure 
in  question  is  yet  generally  regarded  in  the  light  of  an 
experiment. 

As  this  subject  is  one  of  special  interest  in  other  coun- 
tries, it  is  thought  expedient  in  this  connection  to  submit 
a  presentation  and  review  to  it  as  recently  made  by  Prof. 
John  Martin  Vincent,  Professor  of  History  in  Johns  Hop- 
kins University: 

"  The  right  to  manufacture  the  higher  grades  of  dis- 
tilled spirits  belongs  exclusively  to  the  Federal  Govern- 
ment of  Switzerland.  This  is  effected  by  contract  either 
with  home  or  foreign  distillers,  but  at  least  one  fourth 
of  the  quantity  required  must  be  manufactured  by  do- 
mestic companies,  to  whom  the  Government  makes  allot- 
ments from  time  to  time.  In  order  to  encourage  agricul- 
ture, the  distillation  of  certain  native  fruits  and  roots  is 
exempted  from  the  monopoly  and  made  free  to  any  one. 
The  Government  is  also  the  distributor  of  liquors  in  quan- 
tities not  less  than  one  hundred  and  fifty  litres  (a  litre 
=  1.05  quart),  and  fixes  the  prices.  Spirits  used  for  tech- 
nical and  household  purposes  must  be  sold  at  cost  of  manu- 
facture, and  before  delivery  must  be  reduced  by  the  addi- 
tion of  wood  spirits  or  other  mixtures  which  render  them 
unfit  for  drinking.     The  peddling  of  liquor  from  house 


188    THE  THEORY  AND   PRACTICE  OP  TAXATION. 

to  house  is  entirely  forbidden  except  for  the  kind  last  men- 
tioned. Eetail  dealers  require  a  license  from  the  cantonal 
authorities,  and  pay  a  graduated  tax  according  to  the 
amount  of  their  sales.  The  traffic  in  quantities  above  forty 
litres  is  considered  wholesale  and  under  no  restriction. 
The  administration  of  the  liquor  business  is  therefore  en- 
tirely in  the  hands  of  the  Federal  authorities  until  the 
spirits  reach  the  retail  dealers;  there  the  States  [Cantons] 
step  in  to  regulate  the  number  and  the  character  of  the 
dram  shops,  to  make  the  necessary  sumptuary  and  police 
laws,  and  exact  such  license  fees  as  may  seem  best.  The 
net  profits  of  the  government  management  are  collected 
by  the  Federal  authorities,  but  divided  entirely  among  the 
states  [Cantons]  in  proportion  to  population.  The  Can- 
tons on  their  part  are  obliged  to  expend  at  least  ten  per 
cent  of  this  dividend  in  suppressing  the  evils  of  intemper- 
ance, and  to  report  annually  to  the  Federal  Government. 
Distilleries,  in  order  to  continue  operations,  must  be  large 
enough  to  supply  one  hundred  and  fifty  hectolitres  (a 
hectolitre  =  26.4  gallons)  a  year.  The  monopoly  is  pro- 
tected from  competition  by  foreign  countries  by  a  duty  of 
eighty  francs  per  hectolitre  upon  all  high-grade  liquors 
imported,  and  by  a  graduated  scale  of  duties  upon  all  con- 
taining less  than  seventy-two  per  cent  of  alcohol.  No  one 
except  the  Federal  Government  is  permitted  to  import 
alcohol  for  industrial  purposes,  because  the  reducing  pro- 
cess must  undergo  inspection  in  order  to  prevent  fraud. 
In  getting  its  supply  for  the  home  market  the  Govern- 
ment may  purchase  three  fourths  of  the  demand  for  all 
kinds  of  spirits  anywhere  it  chooses.  The  other  fourth, 
as  mentioned  above,  must  be  of  home  manufacture,  and 
the  Government  has  not  exceeded  that  limit,  because  spirits 
can  be  bought  cheaper  abroad  than  at  home."  * 

The  financial  operations  of  this  branch  of  adminis- 
tration in  1891  amounted  to  about  13,660,000  francs,  from 
which  the  net  revenue  was  5,830,000  francs  ($1,165,000). 
"  This  net  gain  was  chiefly  due  to  the  mercantile  profit 
on  liquors  for  drinking  purposes,  since  industrial  spirits 
must  be  sold  at  cost.     Hence,  as  a  business  enterprise,  the 

*  Vincent,   State  and  Federal  Government  in  Switzerland,   pp. 
77-79. 


CONSUMPTION  OP  SPIRITS.  189 

monopoly  is  certainly  a  success.  When  we  inquire  into 
the  moral  and  social  results,  there  is  at  present  less  that 
is  tangible  to  be  observed.  The  expectation  of  the  pro- 
moters of  the  scheme  was  that  the  evils  of  drunkenness 
would  be  reduced,  both  by  decreasing  consumption  and 
providing  a  purer  quality  of  drink.  This  latter  end  is 
obtained  by  Government  inspection,  not  only  of  the  mo- 
nopoly distilleries,  but  also  of  the  smaller  establishments 
manufacturing  free  products. 

"  In  the  matter  of  consumption  there  would  seem  to 
have  been  a  decrease.  In  1885,  before  the  introduction  of 
the  monopoly,  the  total  demand  of  distilled  liquors  for 
drinking  purposes  was  about  150,000  hectolitres,  while  in 
1889  the  amount  sold  by  the  Federal  Government  for  such 
use  was  67,212  hectolitres.  But  it  would  not  be  safe  to 
say  that  the  country  had  become  temperate  to  this  ex- 
tent, for  there  is  strong  reason  to  believe  that  much  of  the 
reduced  alcohol  intended  for  the  arts  is  either  purified 
again  and  used  for  drinking,  or  consumed  outright  in  its 
mixed  state.  The  use  of  liquor  will  by  no  means  be 
brought  under  control  so  long  as  the  distillation  of  low 
grades  of  fruit  spirits  and  the  manufacture  of  malt  drinks 
are  under  no  restriction.  No  one  can  tell  whether  the 
apparent  decrease  in  consumption  is  not  merely  a  diver- 
sion of  appetite  to  applejack  and  absinthe,  or  perhaps  to 
an  increased  use  of  wine  and  beer."  * 

Small  amounts  to  the  credit  of  the  Federal  revenue 
also  accrue  from  the  postal  and  telegraph  service,  from 
the  lease  of  public  domains,  the  monopoly  of  the  manu- 
facture and  sale  of  gunpowder,  from  military  exemptions, 
and  the  like ;  but  the  aggregate  income  from  these  sources 
is  comparatively  unimportant.  The  powder  monopoly  at 
one  time  yielded  considerable  revenue,  but  when  new  and 
more  powerful  explosives  came  into  favour  the  profits  were 
greatly  impaired.  The  income  from  the  Federal  domains 
amounts  to  about  five  tenths  per  cent  of  the  total  revenue. 
The  largest  item  of  expense  to  the  Confederation  is  the 
army,  which  requires  nearly  forty  per  cent  of  its  entire 
revenue.  "  Although  carrying  on  no  wars  of  its  own  nor 
joining  in  the  conquests  of  other  countries,   Switzerland 

*  Ibid.,  pp.  80,  81. 


190    THE   THEORY  AND  PRACTICE  OP  TAXATION. 

is  compelled  to  undergo  this  great  expense  in  order  to  pre- 
serve her  neutrality  and  the  integrity  of  her  borders." 

The  comparatively  recent  tax  experience  of  the  twenty- 
two  Cantons  of  Switzerland  has  been  very  peculiar,  and 
different  in  many  respects  from  that  of  any  other  country 
— a  result  that  might  naturally  have  been  expected  from 
their  respective  governmental  independence,  jealousy  of 
other  Cantons,  internal  antagonisms  consequent  on  the 
division  of  each  Canton  into  sub-governing  communes,  and 
in  the  radical  differences  in  respect  both  to  language  and 
religion. 

The  taxation  of  property  in  general  (or  the  so-called 
general  property  tax)  has  been  thoroughly  tried  in  Switzer- 
land and,  although  substantially  abandoned  in  all  other 
European  countries,  is  still  adhered  to,  and  constitutes  an 
important  feature  in  the  fiscal  system  of  all  the  Swiss  Can- 
tons. In  the  case  of  realty  the  tax  is  levied  on  the  capital, 
and  not  upon  the  annual  value  of  the  estate.  In  the  case 
of  personal  property  everything  is  taxed,  whether  it  yields 
an  income  or  not — furniture,  pictures,  jewelry,  carriages, 
etc. ;  but  furniture  and  trade  appliances  up  to  the  value 
of  $1,000  are  exempted. 

With  a  view  to  the  successful  enforcement  of  this  kind 
of  taxation  almost  every  conceivable  method  has  been  de- 
vised and  adopted,'  such  as  self-assessment  in  the  form  of 
compulsory  returns  on  the  part  of  the  individual ;  assess- 
ments by  officials  on  assumed  data,  oaths  and  no  oaths, 
publicity  and  secrecy;  and  all  of  these,  as  has  been  the 
experience  of  the  United  States  in  the  same  line  of  policy, 
have  been  confessedly  ineffective.  One  institution,  how- 
ever, has  been  developed  in  recent  years  that  is  peculiar  to 
Switzerland,  and  that  is  the  so-called  inventory  method 
(inventarizatio7i) .  "As  soon  as  a  taxpayer  dies  his  entire 
property  is  at  once  seized  by  the  Government  and  held 
until  an  exact  inventory  is  made  of  it.  If  this  discloses 
fraud  in  the  previous  self-assessments,  punitive  taxes  must 
be  paid,  ranging  in  some  Cantons  over  a  period  of  ten 
years."  That  such  a  method  of  tax  administration  has 
and  will  prove  effective  in  increasing  tax  receipts  can  not 
be  doubted,  but  its  objectionable  features  are  no  less  evi- 
dent. Thus  it  intrudes  upon  the  privacy  of  families,  for 
the  purpose  of  fixing  seals  upon  their  property,  at  a  most 


GRADUATED  TAXATION.  191 

inopportime  moment,  and  seeks  evidence  of  the  violation 
of  law,  "  as  it  were,  in  the  very  chamber  of  death."  It  also 
offers  a  bounty  for  the  effective  transfer  of  property  by  its 
owner  in  anticipation  of  death.* 

Considering  that  a  greater  equality  of  fortune  prevails 
in  Switzerland  than  in  almost  any  other  country,  it  is 
somewhat  remarkable  that  it  has  taken  lead  of  all  coun- 
tries in  instituting  a  system  of  progressive  or  graduated 
taxation,  and  has  made  it  applicable  not  only  to  property 
but  also  to  income  and  inheritance  taxes. 

Graduated  taxation  now  exists  in  a  majority  of  the 
Swiss  Cantons,  and  in  only  a  few  is  there  any  prescribed 
limit  to  the  progressive  rate  of  assessment.  The  gradu- 
ation is  applied  in  different  ways.  In  some  Cantons,  estates 
(real  and  personal)  are  classified  according  to  their 
amounts.  The  rate  of  the  tax  is  the  same,  but  a  varying 
proportion  of  the  value  of  the  estate  is  exempted.  Thus, 
in  the  Canton  of  Zurich  the  tax  is  levied  on  five  tenths 
of  a  property  valued  at  four  thousand  dollars,  six  tenths 
on  six  thousand  dollars,  seven  tenths  on  ten  thousand  dol- 
lars, eight  tenths  on  twenty  thousand  dollars,  nine  tenths 
on  forty  thousand  dollars,  and  on  the  entire  estate  when 
exceeding  forty  thousand  dollars  in  value.  In  other  Can- 
tons, as  Aargau  and  Schaffhausen,  an  addition  of  vary- 
ing percentage  is  made  to  the  property  tax  according  as 
the  tax  at  the  normal  or  ordinary  rate  exceeds  a  certain 
specified  amount.  Thus,  in  the  former  Canton,  every  one 
who  is  assessed  for  a  tax  of  from  forty  to  seventy  francs 
in  amount  must  pay  five  per  cent  additional ;  from  seventy 
to  one  hundred  francs,  ten  per  cent  additional,  and  so  on, 
until  those  who  are  assessed  at  over  five  hundred  francs  pay 
thirty-three  per  cent  additional.  In  the  latter  Canton  every 
one  assessed  at  over  five  hundred  francs  pays  fifty  per  cent 
additional.  In  other  words,  the  tax  is  graded  and  made 
progressive  by  adding  a  certain  percentage,  not  to  the  tax- 
able property,  but  to  the  amount  of  the  tax  according  to  a 
proportional  ratio. 

In  some  of  the  Cantons,  as  Vaud,  Basel,  and  Zug,  real 
property  is  divided  into  three  classes:  (a)  under  five  thou- 
sand dollars,  (&)  five  thousand  to  twenty  thousand  dollars, 

*  Essays  on  Taxation,  Prof.  E.  R.  A.  Seligman,  p.  387. 


192    THE   THEORY   AND  PRACTICE   OF   TAXATION. 

(c)  twenty  thousand  dollars  and  upward,  and  a  land  tax 
which  is  enacted  each  year  falls  on  these  three  classes  in 
the  proportions  of  1,  1^,  and  2. 

In  some  of  the  Cantons  personal  estate  is  divided  into 
seven  classes  and  taxed  in  the  proportions  of  1,  1|,  2,  2|, 
3,  3|,  4 ;  the  tax  being  levied  on  the  capital  and  not  on  the 
annual  value  of  the  estate.  In  most  of  the  Swiss  Cantons 
the  progressive  or  graduated  system  of  taxation  in  respect 
to  property  is  also  made  applicable  to  incomes,  inheritances, 
and  bequests;  and  as  a  rule  the  progressive  scale  in  these 
respects  is  more  sharply  graduated  than  in  the  case  of 
property  taxation.  "  Another  peculiar  feature  of  the  Swiss 
taxes  is  that  the  progressive  rate  is  applied  separately  to 
the  income  tax  and  the  property  tax.  A  taxpayer  with 
twenty-five  hundred  francs  income  from  property  and 
twenty-five  hundred  francs  from  labour  will  be  assessed 
separately  for  each,  and  will  pay  less  than  if  he  had  five 
thousand  francs  income  either  from  property  alone  or 
labour  alone." — Seligman. 

There  is,  furthermore,  no  pretence  of  uniformity  in  the 
difi^erent  Cantons  in  the  practical  application  of  the  pro- 
gressive system.  In  fact,  it  is  stated  that  in  no  two  Can- 
tons are  the  rates  of  tax  and  the  classification  of  the  sub- 
jects of  taxation  identical.  In  the  taxation  of  incomes 
the  average  rate  does  not  generally  exceed  four  or  five 
per  cent ;  but  in  some  Cantons  the  rates  rule  as  high  as 
seven  and  even  ten  per  cent.  Where  income  exists  without 
a  corresponding  capital,  as  from  wages,  earnings,  and  life 
annuities,  an  exemption  is  generally  made  of  eighty  dollars 
a  head  for  each  person  dependent  on  the  head  of  the  family 
for  support.'  Thus  a  bachelor  earning  one  thousand  dollars 
a  year  would  pay  about  fifteen  dollars,  while  a  married 
man  with  the  same  income  and  twelve  children  would  pay 
nothing. 

Taxes  on  inheritances  and  successions  in  Switzerland — 
which  are  levied  in  most  or  all  of  the  Cantons — are  char- 
acterized by  extreme  variations  on  rates,  ranging  from  a 
very  small  percentage  in  some  Cantons  to  twenty  and  even 
thirty  per  cent  in  others,  in  the  cases  of  the  remote,  or  non- 
relatives. 

Apart  from  the  federal  and  cantonal  systems  of  taxa- 
tion in  Switzerland,  there  is  a  third  system  which  is  re- 


LOCAL  TAXATION  IN  SWITZERLAND.  193 

garded  as  distinctive,  and  under  the  name  of  local  em- 
braces special  and  separate  assessments  for  the  purpose 
of  defraying  local  or  communal  expenditures — i.  e.,  police, 
preservation  of  forests,  roads,  schools,  and  the  like.  A 
leading  characteristic  of  such  taxes  is,  that  they  do  not 
embrace  the  idea  of  progressive  or  graduated  assessments; 
and  in  their  chief  incidence  on  local  tangible  property 
do  not  permit  any  material  reduction  of  appraisements, 
or  valuations  on  account  of  any  incumbent  indebtedness 
— mortgages  and  the  like — as  is  the  practice  in  the  ap- 
praisements of  like  property  for  cantonal  taxation.  A 
household  tax  and  a  poll  tax  are  also,  to  some  extent, 
features  of  Swiss  local  taxation. 

Of  the  varied  subjects  of  taxation  from  which  the  Swiss 
Cantons  mainly  derive  their  revenue,  the  following  classi- 
fication and  exhibit  of  those  of  the  Canton  of  Vaud  in 
1887,  the  third  largest  Canton  in  respect  to  population, 
though  not  in  area,  will  serve  as  an  illustration : 

1.  Public  lands,  forests,  and  salt  monopoly. 

2.  Licenses  to  retail  tobacco,  wine,  and  spirits. 

3.  Taxes  on  dogs,  saddle  horses,  carriages,  and  billiard 
saloons. 

4.  A  tax  on  all  transfers  of  real  property  (droit  de 
mutation) . 

5.  An  annual  tax  on  the  capital  value  of  real  property 
(impot  fonder). 

6.  An  annual  tax  on  the  capital  of  all  personal  property 
and  on  incomes  {impot  mohilier). 

The  last  three  taxes  are  the  most  important  and  pro- 
ductive, their  united  product  being  equal  to  about  nine 
tenths  of  the  entire  revenue. 

Concerning  the  results  of  this  novel  and  complicated 
system  of  taxation  in  Switzerland  there  is  great  diversity 
of  opinion.  That  it  is  not  uniform  throughout  the  com- 
paratively small  territorial  divisions  of  the  country  to 
which  it  has  been  made  applicable,  only  a  very  few  Cantons 
being  reported  as  in  agreement ;  that  no  fixed  rules  govern- 
ing progression  or  gradation  in  assessments  have  been 
generally  agreed  upon  and  established ;  that  the  practical 
administration  of  the  system  is  in  the  highest  degree  arbi- 
trary; and  that  the  ascertainment  of  the  tax  that  an  in- 
dividual or  estate  shall  pay  often  involves  a  series  of  com- 


194    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

plex  and  difficult  computations  and  additions,  are  all  points 
in  respect  to  which  there  is  no  question. 

The  anomaly  and  gross  iniquity  of  double  taxation  on 
one  and  the  same  property,  contingent  on  the  circumstance 
that  the  situs  of  the  property  and  the  domicile  of  its  owner 
are  not  within  the  same  territorial  and  governmental  juris- 
dictions, and  which  is  at  present  a  subject  of  much  discus- 
sion and  deprecation  in  the  United  States,  is  also  a  vexing 
problem  in  the  system  of  taxation  in  Switzerland,  two  dif- 
ferent communes,  as  a  rule,  making  demands  of  a  tax- 
payer by  reason  of  his  holding  a  landed  estate  in  one  and 
residing  and  exercising  the  rights  of  a  citizen  in  the  other ; 
and  the  probability  of  any  just  and  satisfactory  solution 
of  this  perplexing  problem  is  as  remote  in  one  country  as 
in  the  other. 

Notwithstanding  the  above  and  other  objectionable 
features,  the  people  of  Switzerland  appear  to  be  generally 
satisfied  with  their  fiscal  experiment,  and  thus  far  have 
exhibited  but  little  disposition  to  change  it;  and  all  the 
most  important  Cantons  that  have  tested  it  report  a  steady 
increase  in  their  aggregate  valuation  of  both  property  and 
income.  Even  the  extreme  high  rates  of  taxation  assessed 
on  large  properties  and  incomes — amounting  in  some  Can- 
tons almost  to  confiscation — have  not  been  generally  re- 
garded with  disfavour,  but  probably  for  the  reason  that 
the  number  of  persons  in  Switzerland  who  are  liable  to  such 
assessments  is  comparatively  limited. 

On  the  other  hand,  it  is  contended  that  any  fiscal  gain 
that  is  reported  under  the  new  system  has  been  more  than 
counterbalanced  by  depreciation  in  land  values  and  injury 
to  local  trade.  In  the  Canton  of  Yaud,  for  example,  where 
the  new  ideas  are  specially  exemplified,  wealthy  families 
are  reported  as  having  left  the  Canton,  and  that  many  of 
its  citizens  regularly  close  their  houses  for  nine  months 
in  the  year  in  order  to  evade  the  law.  Foreigners,  too,  are 
said  to  be  less  and  less  anxious  to  reside  in  the  Canton, 
In  consequence  of  this,  it  is  claimed  that  many  properties 
in  Yaud  have  depreciated  fifty  per  cent,  and  that  trade 
suffers  greatly.  Whether  all  these  allegations  are  true  or 
not,  it  is  significant  that  a  proposal  to  introduce  the  Yaud 
system  into  the  Canton  of  Berne  was  rejected  by  its  people 
by  an  overwhelming  majority. 


TAXATION  AND   CIVILIZATION.  195 

To  THE  Reader  :  With  the  publication  of  this  chapter 
on  The  Tax  Experiences  of  Switzerland,  the  first  part  of 
the  plan  laid  out  by  the  writer  for  discussing  the  Principles 
of  Taxation  comes  to  a  conclusion.  This  plan,  apart  from 
an  introductory  survey  of  the  subject,  and  a  review  of  the 
interesting  and  most  instructive  tax  experiences  of  the 
United  States  consequent  on  the  civil  war,  and  with  which 
the  writer  (as  chairman  of  the  United  States  Revenue  Com- 
mission in  1865,  and  as  United  States  Special  Commis- 
sioner of  Revenue  from  1866  to  1870)  was  officially  and 
closely  associated  (Chapters  I  and  II),  was  to  set  forth 
the  position  of  taxation  in  literature  and  history ;  and  more 
especially  to  narrate  the  most  notable  experiences  of  differ- 
ent countries  and  nations  in  compelling  contributions  or 
exactions  for  the  support  of  the  state  from  the  people 
governed,  and  the  far-reaching  and  important  results  that 
have  been  contingent  upon  and  have  followed  the  differ- 
ent policies  that  have  been  adopted  for  such  a  purpose. 
The  underlying  idea  that  suggested  this  plan  was  as  fol- 
lows: 

Every  person  of  ordinary  intelligence,  if  questioned, 
will  probably  admit  that  the  subject  of  taxation  is  one  of 
the  most  important  that  can  concern  the  masses  of  the 
people;  and  that  their  well-being  and  the  continuance  of 
good  government,  and  even  of  civilization  itself,  are  more 
dependent  on  the  involved  power  of  its  administration 
and  discretionary  incidence  than  upon  any  other  agency 
— a  power  so  great  that  its  right  exercise  in  even  the 
smallest  degree,  according  to  the  late  Chief-Justice  Mar- 
shall, "  involves  the  right  to  destroy."  And  yet  the  same 
citizen  will  probably  say  that  the  subject,  as  ordinarily 
presented  and  discussed,  is  so  dry  and  uninteresting  as  to 
be  exceedingly  unattractive,  and  even  repellent ;  that  the 
conflict  of  opinion  on  the  part  of  those  who  through  study 
claim  to  understand  it  is  so  diverse  that  any  general  con- 
currence of  opinion  in  regard  to  fundamental  principles 
is  impossible;  and,  finally,  that  all  experience  shows  that 
by  reason  of  this  state  of  things  mercenary  and  political 
considerations  necessarily  predominate  in  the  construction 
of  any  general  system  of  taxation. 

It  is  obvious  that  under  such  circumstances  it  must  be 
difficult  or  impossible  to  induce  the  masses  of  the  people 


196    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

to  intelligently  interest  themselves  in  the  subject  of  taxa- 
tion, and  that  in  countries  like  the  United  States,  where 
under  free  and  universal  suffrage  the  same  people  elect  the 
legislators  who  shall  determine  the  policy  of  their  Govern- 
ment, laws  will  be  enacted  for  the  collection  of  revenue 
for  the  support  of  the  state  that  will  be  neither  productive 
nor  effective,  and  do  not  promote  but  rather  impair  the 
industrial  and  commercial  interests  of  the  country. 

The  question,  then,  next  suggests  itself.  How  can  a  dif- 
ferent state  of  things  be  brought  about?  How  can  the 
people  in  general  be  induced,  in  the  sense  of  persuasion  and 
not  of  compulsion,  to  interest  themselves  in  this  subject? 
The  idea  of  the  writer  is  that  such  a  change  can  best  be 
effected  by  showing  that  the  subject  is  not  necessarily  dry 
and  uninteresting;  that  it  really  constitutes  more  than 
almost  any  other  element  the  essence  of  history ;  and  that 
the  record  of  the  results  that  have  followed  the  attempts 
to  establish  almost  every  form  of  taxation  that  human 
ingenuity  can  devise,  has  even  in  a  very  high  degree  the 
attraction  of  romance.  Its  study  from  such  a  point  of  view 
constitutes  a  better  basis  for  casting  a  horoscope  of  the 
future  of  nations  and  governments  than  aught  else  within 
the  ken  of  the  historical  student. 

In  the  chapters  that  are  to  follow,  where  a  search  for 
the  underlying  principles  of  taxation  is  to  be  prosecuted, 
a  resort  to  more  or  less  abstract  reasoning  is  a  necessity. 
But  even  here  the  presentation  of  abstract  principles,  to 
which  assent  will  be  asked  or  expected,  will  be  avoided  as 
far  as  possible,  with  the  expectation  that  the  reader  will, 
from  a  consideration  of  the  facts  and  deductions  presented, 
be  able  himself  to  frame  and  determine  the  principles  that 
should  govern  a  correct  system  of  taxation  by  a  process 
of  self-evident  induction. 


CHAPTER  IX. 

THE    DEFINITION,    OBJECT,    AND    SPHERE    OF    TAXATION. 

It  would  seem  to  be  in  the  nature  of  an  economic  or 
common-sense  axiom,  that  a  large  and  varied  experience 
in  respect  to  the  management  of  any  one  of  the  great  de- 
partments of  the  "world's  business,  would  result  in  the 
gradual  evolution  and  final  definite  establishment  of  cer- 
tain rules  or  principles,  which  would  be  almost  universally 
recognised  and  accepted  as  a  basis  for  practical  applica- 
tion and  procedure.  But  in  respect  to  the  matter  of  taxa- 
tion— which  is  a  fundamental  necessity  for  the  maintenance 
not  only  of  all  government,  but  of  civilization — no  such 
result  has  been  achieved.  In  no  department  of  economic 
science  is  there,  moreover,  so  much  obscurity  and  conflict- 
ing opinion.  Most  economists  teach  that  there  is  "  no  sci- 
ence of  taxation  as  there  is  a  science  of  exchanges  "  ;  and 
"  that  there  are  no  great  natural  laws  running  through 
and  controlling  taxation  and  its  effects."  And  while  the 
student  will  find  examples  in  the  history  of  states  or  gov- 
ernments of  the  practical  application  of  almost  every  form 
of  appropriation  of  private  property  under  the  name  of 
taxation  which  human  ingenuity,  prompted  by  necessity, 
selfishness,  or  greed,  could  devise,*  and  a  sufficient  record 

*  "  In  Austria  everything,  it  is  said,  is  taxed  except  the  air, 
and  even  that  has  to  be  paid  for  in  places  famous  for  their  salu- 
brity. Dogs,  cycles,  newspapers,  advertisements,  and  innumerable 
other  articles — pleasures  and  necessaries — are  included  in  the 
money-producing  list;  nothing,  indeed,  seemed  excluded  until  a 
very  short  time  ago,  when  a  provincial  financier  forwarded  an 
exhaustive  report  to  the  finance  ministry  on  a  neglected  source  of 
revenue — cats.  The  horse,  the  ass,  the  goat,  the  hog,  the  chicken, 
the  dog,  the  goose — all  contribute  their  mites  to  the  support  of  the 
state,  said  this  financial  reformer.  The  cat  alone  is  a  parasite, 
paying  nothing  to  any  one  and  preying  upon  every  one.  But  is 
the  project  really  practicable?     Certainly  it  is,  replies  its  author, 

197 


198     THE   THEORY  AND   PRACTICE   OP   TAXATION. 

of  eifects  to  warrant  the  drawing  of  general  and  correct  in- 
ferences, it  is  nevertheless  probably  true  that  there  is  not, 
at  the  present  time,  a  single  existing  tax,  decreed  by  despot- 
ism, or  authorized  by  the  representatives  of  the  taxpayers, 
which  has  been  primarily  adopted,  or  enacted  solely  with 
reference  to  any  economic  principles,  or  which  has  sought 
to  establish  the  largest  practical  conformity  under  concur- 
rent circumstances  to  what  are  acknowledged  to  be  the 
fundamental  principles  of  equity,  justice,  and  rational 
liberty.  But,  on  the  contrary,  the  influence  of  temporary 
circumstances,  as  viewed,  in  most  instances,  from  the  stand- 
point of  a  governmental  administration — despotic  or  re- 
publican alike — desirous  of  retaining  power,  has  ever  been 
ihe  controlling  motive  in  determining  the  character  of 
r taxation;  or,  as  Colbert,  the  celebrated  finance  minister 
of  Louis  XIV,  is  reported  to  have  expressed  it,  in  saying 
that  "  the  art  of  taxation  consists  in  so  plucking  the  goose 
[i.e.,  the  people]  as  to  procure  the  largest  quantity  of 
feathers  with  the   least  possible  amount  of  squawking." 


and  he  forthwith  sets  himself  to  prove  it.  Every  cat  for  which 
the  tax — a  rather  heavy  sum — is  paid  would  receive  an  official 
coloured  ribbon  for  its  neck,  with  a  number  and  a  government 
stamp.  Every  feline  defaulter  found  without  this  ribbon  would 
be  seized  and  temporarily  confined  in  the  Cats'  Home.  If  not 
redeemed  before  the  lapse  of  a  fixed  term — say  eight  days — it 
would  be  sold  or  poisoned  by  the  state." 

"  A  tax  on  beards  was  in  operation  for  a  long  time  and  under 
various  forms  in  Russia.  Peter  the  Great,  knowing  the  attachment 
that  his  subjects  had  for  the  hirsute  adornment  of  the  face,  intro- 
duced a  tax  upon  the  beard  in  his  empire.  The  beard  is  a  super- 
fluous and  useless  ornament,  said  he,  and,  starting  from  this  prin- 
ciple, he  imposed  a  tax  upon  it  as  an  article  of  luxury.  This  tax 
was  proportional  and  progressive,  not  in  proportion  to  the  length 
of  the  beard,  but  to  the  social  position  of  those  who  wore  it.  Each 
person  upon  paying  his  tax  received  a  token,  which  he  had  to 
carry  upon  his  person,  for  the  guards  were  inexorable,  and,  always 
provided  with  scissors,  ruthlessly  cut  off  the  beard  of  those  who 
could  not  show  their  badge." 

"  Catharine  I  confirmed  this  tax.  In  1728  Peter  II  allowed  the 
peasants  to  wear  a  beard,  but  kept  up  the  tax  for  the  other  classes 
under  the  penalty  of  work  on  the  galleys  in  the  case  of  non-pay- 
ment. Czarina  Anne  rendered  life  still  harder  to  bearded  men, 
for  not  only  were  they  obliged  to  pay  the  special  contribution 
imposed  upon  them,  but  also  had  to  pay  a  double  tax  upon  every- 
thing else  for  which  they  were  assessed.  This  tax  was  not  abol- 
ished until  the  reign  of  Catharine  II   (1762-1798)." 


A  SCIENCE  OP  TAXATION. 


199 


1: 


^ 


\ 


o 


3 


Hence,  apart  from  its  methods  of  distributing  power  and 
patronage,  the  popular  idea  of  evil,  as  connected  with  gov- 
ernment, may  almost  always  be  referred  back  to  unequal 
or  excessive  exactions ;  and  to  the  reality  of  which,  as  evils, 
more  than  to  any  other  one  agency,  may  be  referred  most 
of  the  world's  political  revolutions,  and  the  ferocity  with 
which,  as  was  notably  the  case  in  France,  they  have  been 
often  conducted.  Hence,  also,  the  preference  almost  always 
shown,  on  the  part  alike  of  those  who  enact  and  those  who 
pay  taxes,  for  indirect  taxation,  which  very  successfully 
blinds  the  taxpayer  as  to  the  amount  which  he  pays  and  as 
to  the  time  and  place  of  its  collection;  and  hence,  finally, 
the  idea,  which  has  come  to  be  all  but  universally  enter- 
tained, that  taxation  per  se  is  in  itself  an  evil — something 
to  be  avoided,  if  possible,  and  an  escape  from  which  is 
always  "  good  fortune." 

A  QUESTION  OF  PRIME  IMPORTANCE,  therefore,  which 
confronts  us  at  the  outset  in  entering  upon  any  discus- 
sion of  this  subject  is.  Are  these  assumptions  of  economists 
that  there  is  no  science  of  taxation  and  no  general  lawsV      "^ 
regulating  its  exercise  and  effects — assumptions  generally   ^e      \^ 
-concurred  in  by  jurists  and  popular  sentiment — correct^      ^^^      \ 
If  they  are,  then  there  are  no  principles  of  taxation  to  dis-  Si?     '  J{     V 
cuss,  and  a  consideration  of  the  subject  must  be  limited^    \^       Sl 
mainly  to  a  recital  of  the  world's  experiments  and  experi^ 
ences  and  an  exposition  of  legislative  enactments  and  court    VAv 
decisions.      To    admit   their    correctness,    furthermore,    is      ^ 
equivalent  to  confessing  that  human  knowledge,  in  at  least/'       *l.  "^y-.. 
one  department,  has  reached  its  extreme  limit;  and  that  sr'  ^^   ^o" 
class  of  transactions  which,  more  than  almost  any  other,p     ^^     ^ 
are  determinative  of  the  distribution  of  wealth,  the  iorms\jj  ^ 


in  which  industry  shall  be  exerted,  and  the  sphere  of  per-    J^^  p 
sonal  liberty,  are  best  directed  by  accident  or  caprice.     To  f(j,/i^ 
ascertain  the  true  state  of  the  case  ought,  accordingly,  to  ^  v 

constitute  the  main  object  of  inquiry,  and,  with  a  view     '^t 
of  helping  to  the  formation  of  an  intelligent  opinion,  atten- 
tion will  be  first  asked  to  the  meaning  or  definition  of  the 
two  fundamental  terms,  tax  and  taxation.    And  in  so  doing  z 

we  obtain  immediately  an  illustration  of  the  indefiniteness  ^     '^  - 
of  idea  and  lack  of  exactitude  in  expression  that  charac-  ^ 
terize  this  whole  subject,  and  also  a  very  definite  clew  to    \    ^ 
their  origin.  ^        ^.y    s 


^ 


^ 


•=\- 

^ 


n 


200    THE  THEORY  AND   PRACTICE   OF  TAXATION. 

Analysis  of  the  Word  Tax. — Thus,  the  word  tax  in 
the  English  language,  and  its  equivalent  in  all  other  lan- 
guages, is  used  in  a  very  loose  and  indefinite  sense.  Many 
writers,  and  the  dictionary-makers  generally,  use  the  word 
in  an  extremely  generic  sense,  to  cover  and  designate  all 
contributions  obtained  by  process  of  assessment  and  levy 
(act  of  collection)  by  a  state  or  government  from  the  per- 
sons and  property  of  its  citizens,  or  from  persons  and 
property  within  its  power  and  jurisdiction;  in  whatever 
form,  or  however  arbitrary  the  assessments  or  levies  may 
be,  and  by  whatever  name  they  may  be  known  or  desig- 
nated— whether  tribute,  toll,  talliage,  duty,  gabelle,  cus- 
toms, impost,  poll,  subsidy,  aid,  excise,  income,  or  benevo- 
lence.* Such  a  definition,  however,  which  makes  no  dis- 
tinction between  contributions  levied  at  his  unrestrained 
will  or  caprice,  and  for  any  purpose,  by  a  bandit  whom 
circumstances  have  raised  to  the  head  and  government 
of  a  petty  tribe  or  community ;  or  by  an  absolute  and  igno- 
rant Oriental  potentate,  like  Ismail  Pasha,  Khedive  of 
Egypt  (1863-'79);f  or  by  a  European  monarch,  like 
Louis  XIV,  who  said,  "  I  am  the  state,"  and  those  con- 
tributions which  represent  that  part  of  the  wealth  of  a 

*  "  A  tax  is  a  rate  or  sum  of  money  assessed  on  the  person  or 
property  of  a  citizen  by  Government  for  the  use  of  the  nation  or 
State." — Webster's  Dietionary. 

Tax. — "  1.  A   disagreeable   or  burdensome   duty   or  charge;  an 
exaction;    a  requisition;    an   oppressive   demand;    strain;    burden; 
J^     ^  ^    task. 

"  2.  An  enforced  proportional  contribution  levied  on  persons, 
property,  or  income,  either  (a)  by  the. authority  of  the  state  for 
the  support  of  the  government,  and  for  all  its  public  or  govern- 
mental needs,  or  {b)  by  local  authority  for  general  municipal 
purposes." — Century  Dictionary. 

"  The  definition  of  both  Webster  (Daniel)  and  Story  (Justice) 
is,  that  a  tax  is  a  contribution  imposed  by  Government  on  indi- 
viduals for  the  service  of  the  State." — Miller,  on  the  Constitution 
of  the  United  States,  p.  235. 

"  Taxes  are  defined  as  the  enforced  proportional  contribution 
of  persons  and  property  levied  by  the  anthority  of  the  State  for 
the  support  of  the  Government  and  for  all  public  needs." — Cooley 
on  Taxation,  p.  1. 
\  ^  ^  "A  tax  is  a  portion,  or  the  value  of  a  portion,  of  the  property 
'=^  %  ^y  or  labour  of  individuals  taken  from  them  by  Government  and 
placed  at  its  disposal." — J.  R.  McCuUoch. 

t  See  ante,  p.  144. 


DEFINITION  OF  A  TAX. 


201 


< 


y. 


1 


state  which  is  taken  from  its  citizens  with  their  free  con- 
sent for  exclusive  public  purposes,  in  accordance  with  a 
well-defined  and  intelligent  public  policy ;  a  definition  that 
recognises  no  distinction  between  these  two  methods  and 
objects  of  taking,  obviously  can  not  be  scientifically  cor- 
rect;  for  there  can  be  no  more  analogy  between  the  two 
methods  than  between  a  payment  for  value  received  and  an 
act  of  highway  robbery.*  Obviously,  also,  there  can  be  no 
science  of  taxation  predicated  or  formulated  on  such  a 
definition,  for  there  can  be  no  science  of  irregularity  and 
arbitrary  action. 

Again :  "  So  long  as  people  use  words  which  have  no 
precise  signification,  which  may  be  interpreted  in  a  variety 
of  ways,  and  which  present  at  once  to  the  mind  different 
ideas  more  or  less  obscure,  more  or  less  mixed  up  with  one 
another,  there  will  be  uncertainty  in  the  theory,  or  rather 
there  will  be  a  vague,  incomplete,  and  ill-co-ordinated 
theory;  and  then,  as  all  practice  is  the  application  of  a 
theory,  the  practice  resulting  from  it  will  be  faulty." — 
M.  Menier. 

The   French  economist   above   quoted   also  makes  the    - 
following   well-warranted   criticism   on   the   current   defi- 
nitions of  taxation :  "  They  have,"  he  says,  "  one  generaL-s- 
f ault :  they  try  to  point  out  the  employment  of  taxes,  but 
they  do  not  show  the  origin  of  taxes." 

What,  then,  will  be  a  correct  definition  of  a  tax? 

It  is  not  easy  to  frame  such  a  one,  in  clear  and  suc- 
cinct language,  covering  all  the  essential  conditions.  It 
probably  never  has  been  done,  and  therefore  the  best  thing  ^ 
to  do  is  not  to  spend  time  and  effort  in  attempting  it,  but  <:^^^^^:^ 
rather  to  endeavour  to  illustrate  and  point  out  its  meaning 
indirectly.  And,  with  this  purpose  in  view,  it  is  impor- 
tant to  recognise  at  the  outset  an  exact  and  homely  truth, 
and  one  which  heretofore  has  often  been  overlooked  by 
writers  on  taxation  and  political  economy,  namely : 

That  a  government  never  has  any  money — by  which 


^ 


J> 


*  Despotic  rulers  in  all  ages  of  the  type  of  Louis  XIV,  the 
Khedives  of  Egypt,  the  Sultans  of  Turkey,  and  the  Czars  of  Russia 
have  undoubtedly  regarded  their  expenditures  of  money  exacted 
under  the  name  of  taxation  from  their  subjects  for  the  mainte- 
nance of  great  armies,  harems,  mistresses,  pensions  to  favourites, 
and  the  like,  as  for  legitimate  public  purposes. 
14 


202    THE  THEORY   AND   PRACTICE   OF  TAXATION. 

alone  the  expenses  of  the  state  can  be  defrayed — except 
what  the  people — citizens  or  subjects — give,  or  concede  to 
it  by  voluntary  or  involuntary  action ;  and  that  the  people, 
as  a  whole  and  in  turn,  never  have  any  to  give  except  what 
conies  to  them  as  the  result  of  their  work,  or  from  an  ex- 
change of  the  products  of  their  work.  And  such  being 
the  case,  it  follows,  as  has  been  happily  pointed  out  by  Mr. 
Atkinson,  that  what  the  Government  really  wants  of  its 
people,  when  it  calls  upon  them  for  taxes,  is  work,  and 
that  the  methods  of  taxation  are  only  methods  for  collect- 
ing and  using  the  products  of  work.*  Hence  the  following 
definition  of  a  tax,  deduced  from  the  above  statement  of 
fact  by  Mr.  Atkinson — that  "  it  is  that  certain  portion  of 
the  product  of  a  country  wJiich  must  he  devoted  to  the  sup- 
port of  the  Government  " — embodies  a  meaning  and  a  truth 
not  incorporated  and  set  forth  in  the  ordinary  or  popular 
definitions.  At  the  same  time  it  is  deficient  in  not  recog- 
nising any  distinction  between  a  just  and  uniform  tak- 
ing and  an  exaction  or  confiscation. 

TxlXATION  IN  THE  UNITED  STATES,  ITS  AGGREGATE  AND 

Distribution. — During  the  year  1890  the  aggregate  reve- 
nue receipts  of  the  several  governments  of  the  United 
States,  derived  mainly  from  taxation,  as  reported  by  the 
census  of  that  year,f  were  $1,039,482,013,  apportioned 
as  follows:  Federal  taxation,  $461,184,680;  State  taxa- 
tion, $578,328,333.  The  last  aggregate  was  again  sub- 
divided into  $116,157,640  for  State  purposes,  including 
the  Territories  and  District  of  Columbia,  $133,525,493  for 

*  "  Taxation  means  work,  of  the  haad,  of  the  hand,  or  of  the 
machine,  or  all  combined.  And  the  method  of  taxation  is  only 
a  method  of  distributing  the  products  of  work.  It  is  measured, 
when  in  the  process  of  distribution,  in  terms  of  money,  but  the 
money  itself  stands  for  work,  or  is  derived  from  work.  And  the 
work  of  the  Government  is  as  much  a  part  of  the  work  of  the 
community  as  any  other.  All  who  work,  from  the  head  of  the 
nation  down  to  the  lowest  municipal  official,  must  be  supplied 
with  shelter,  food,  and  clothing;  and  those  who  pay  the  taxes  do 
the  work  that  is  necessary  to  furnish  this  supply." — The  Indus- 
trial Prof/rrss  of  the  Nation,  Edward  Atkinson;  Taxation  and 
IForA",  same  author. 

t  The  census  of  1890  presented  for  the  first  time  even  an  ap- 
proximation of  the  annual  incomes  of  the  several  governments  of 
the  United  States,  and  the  amount  and  objects  for  which  they 
were  expended. 


TAXATION  AND   WORK.  203 

county  purposes,  and  $329,635,200  for  municipalities  and 
schools.  If  a  temporary  and  extraordinary  charge  for  pen- 
sions— $140,959,361  in  1895 — which  now  rests  upon  the 
Federal  Government,  were  eliminated,  and  Federal  ex- 
penditures were  reduced  correspondingly,  the  taxation  and 
expenditures  of  the  national  or  Federal  Government  would 
be  small  in  comparison  with  the  total  cost  of  all  govern- 
ment. Federal  and  State;  a  result  that  constitutes  a  com- 
plete refutation  of  the  common  assumption  that  the  na- 
tional Government  is  rapidly  absorbing  the  functions  of 
the  State  and  local  governments  and  reducing  them  sub- 
stantially to  police  precincts.  Of  the  Federal  revenues, 
nearly  one  half  under  the  existing  fiscal  system  are  derived 
from  stamp  taxes  and  taxes  on  distilled  spirits,  fermented 
liquors,  and  tobacco,  all  of  which  may  be  fairly  regarded 
as  self-imposed. 

If  we  assume,  as  we  are  probably  warranted  in  doing, 
the  average  value  of  the  product  of  each  person  in  the 
country  who  is  occupied  for  gain  at  six  hundred  dollars 
per  year,*  or  two  dollars  per  day  for  three  hundred  work- 
ing days,  then  that  part  of  the  annual  product  of  the  coun- 
try which  went  to  the  support  of  its  Government  or  the 
State  in  1890  was  the  equivalent  of  the  work  of  1,734,121 
such  persons  for  one  year,  or  520,236,300  days'  work;  or, 
in  other  words,  for  every  dollar  that  the  Government  ex- 
pends, somebody  must  work  for  at  least  half  a  day,  or 
furnish  a  value  equivalent  for  such  an  amount  of  work. 
Again,  for  the  year  1890,  the  aggregate  of  taxation  in  the 
United  States — national.  State,  and  local — required  or  rep- 
resented about  seven  per  cent  of  the  value  of  the  entire 
annual  product  of  the  country,  which  probably  approxi- 
mated $1,200,000,000.  In  former  days  it  was  often  cus- 
tomary to  allow  persons  to  pay  their  taxes  by  actual  days' 
work,  and  this  is  still  the  practice  in  some  parts  of  the 
United  States  and  in  Canada  and  some  countries  of  Eu- 
rope. Before  the  French  Revolution,  the  tax  imposed  on 
the  French  peasantry,  and  known  under  the  name  of  corvee, 

*  The  most  recent  investijjations  of  Mr.  Atkinson,  the  best  au- 
thority on  this  subject,  have  led  him  to  the  conclusion  that  the 
averajre  value  of  the  product  of  each  person  in  the  United  States, 
workinc:  for  gain  three  hundred  days  in  the  year,  was  in  1890 
nearer  $700  than  $600  per  annum. 


204    THE  THEORY   AND   PRACTICE  OF  TAXATION. 

as  has  been  already  shown,  was  an  obligation  to  render  a 
specified  number  of  days'  work  to  the  state,  or  to  some 
seignior  or  noble.  During  the  early  colonial  days  of  Massa- 
chusetts, the  people  of  the  settlements  far  removed  from 
Massachusetts  Bay  paid  their  proportion  of  the  expense  of 
maintaining  a  colonial  government  at  Boston  in  wheat, 
which  was  shipped  down  the  Connecticut  Kiver  in  canoes, 
and  then  transferred  to  sailing  craft  and  transported  by 
sea  to  Boston.  One  could  hardly  imagine  the  disturbance 
and  excitement  that  would  be  occasioned  if  all  the  taxes 
of  the  country  were  to  be  collected  in  this  way,  and  if  the 
head  of  every  family  was  compelled  to  perform  annually 
some  twenty  days'  labour  to  discharge  the  obligation  in- 
cumbent on  himself  and  family  to  pay  taxes,  which  would 
be  about  the  amount  which  the  head  of  every  family  in  the 
United  States  would  have  to  perform  to  meet  its  present 
annual  expenditures.  Everybody  would  then  be  talking 
economy;  and  the  politician  who  wanted  votes,  instead  of 
promising  public  buildings,  or  more  salaried  offices  to  his 
constituents,  would  say,  "  Gentlemen,  give  me  your  votes 
and  elect  me,  and  I  will  have  your  compulsory  labour  cut 
down  next  year  from  twenty-five  days  to  twenty,  or  even 
fifteen."  And  yet  the  difference  between  that  state  of 
things  and  the  present  is  merely  a  difference  of  appearance. 
What  is  Taxation? — The  popular  or  dictionary  defi- 
nition of  taxation — namely,  "  the  act  of  levying  a  tax  or  im- 
posing taxes  " — is  as  indefinite  and  imperfect  as  the  ordi- 
nary definition  of  a  "  tax  "  has  been  shown  to  be.  Scientifi- 
cally considered,  taxation  is  the  taking  or  appropriating 
such  portion  of  the  product  or  property  of  a  country  or  com- 
munity as  is  necessary  for  the  support  of  its  government, 
by  methods  that  are  not  in  the  nature  of  extortions,  pun- 
ishments, or  confiscations;  and  a  systematic  and  orderly 
arrangement  and  presentation  of  the  knowledge  gained 
by  experience  and  discussion,  with  a  view  to  effect  such  a 
result  with  certainty,  uniformity,  and  the  minimum  of 
cost  and  trouble  to  society  and  its  individual  taxpayers  or 
contributors,  constitutes  the  Science  of  Taxation* 

*  Essentially  the  same  definition  of  taxation  has  been  given  by 
Mr.  J.  R.  MeCnllooh.  "  It  is,"  he  says,  "  the  name  given  to  the 
branch  of  the  science  of  political  economy  which  explains  the  mode 
in  which  different  taxes  affect  the  public  interest,  and  in  which 


MEANING  OF  TAXATION.  205 

In  what  will  be  hereafter  said,  the  word  taxation  will 
be  used  as  far  as  possible  in  the  sense  in  which  it  has  been 
defined;  but  at  the  same  time  the  employment  of  the  un- 
scientific term  has  become  so  general  that  its  use  in  default 
of  any  satisfactory  synonym  is  almost  unavoidable,  espe- 
cially in  the  historical  treatment  of  the  subject. 

Such  a  limitation  of  the  meaning  and  nature  of  the 
word  tax  as  has  thus  been  given  is  clearly  of  the  first  im- 
portance, and  a  lack  of  its  recognition  is  undoubtedly  re- 
sponsible in  a  high  degree  for  the  present  unsatisfactory 
position  of  the  subject  of  taxation  as  a  department  of 
economic  knowledge ;  and  also  for  a  very  general  belief 
that  in  determining  the  forms  of  taxes  the  only  rule  to  be 
followed  is  that  of  expediency.  It  may  be  too  much  to 
claim  that  a  general  recognition  and  practical  acceptance 
of  the  proposed  definitions  and  limitations  are  absolute 
essentials  for  the  conception  and  construction  of  any  just 
and  intelligent  system  of  taxation,  and  also  for  any  such 
collocation  of  general  truths  relative  to  taxation  as  will 
raise  the  subject  to  the  dignity  of  a  science.  But,  be  this 
as  it  may,  it  seems  certain  that  such  recognition  and  ac- 
ceptance would  at  once  sweep  away  many  obstacles  that 
would  otherwise  stand  in  the  way  of  such  a  consummation, 
and  bring  a  high  degree  of  order  into  what  is  now  a  com- 
parative chaos. 

And,  as  one  illustration  of  this,  consider  how  entirely, 
and  yet  how  naturally,  the  proposed  definitions  and  limi- 
tations change  the  generally  accepted  idea  of  the  relation 
of  a  tax  to  the  individual  taxpayer. 

As  has  been  already  pointed  out,  the  popular  idea  of  a 
tax  is  that  it  is  always  an  evil.  Most  writers  also  on  political 
economy,  in  discussing  the  subject,  start  with  the  idea  that 
the  act  or  exercise  of  taxation  necessarily  implies  perpetual 
antagonism  between  the  state,  the  sovereign,  or  the  ex- 

the  revenue  required  for  the  public  service  may  be  most  advan- 
tageously raised." — Treatise  on  tJte  Principles  of  Taxation,  J.  R. 
McCiiUo'ch,  1875. 

"  Taxation. — The  act  of  laying  a  tax,  or  of  imposing  taxes  on 
the  subjects  or  citizens  of  a  state  or  government,  or  on  the  mem- 
bers of  a  corporation  or  company,  by  the  proper  authority;  the 
raising  of  revenue  required  for  public  service  by  means  of  taxes; 
the  system  by  which  such  a  revenue  is  raised." — Century  Dic- 
tionary. 


206    THE   THEORY  AND   PRACTICE  OF  TAXATION. 


I 


ecutive,  and  the  private  citizen.  The  parties  concerned 
are  the  citizen  on  the  one  side  and  the  state  on  the  other, 
and  the  former  being  comparatively  weak  and  the  latter 
exceedingly  strong,  the  state  is  always  assumed  to  get  the 
upper  hand.  M.  Proudhon,  in  his  work  Theorie  de  I'lmpot, 
maintains  that  "  all  taxes  are  iniquitous,"  and  that  "  if  a 
sole  tax  was  established  it  would  be  the  sum  of  fiscal  in- 
iquities." "  There  are  no  taxes,"  says  Ricardo,  "  which 
have  not  a  tendency  to  lessen  the  power  to  accumulate." 
J.  B.  Say,  the  eminent  French  economist,  declared  that, 
by  whatever  name  known,  taxes  are  always  a  burden  upon 
the  private  citizen.  M.  Garnier,  another  French  economist, 
defines  taxes  "  as  the  reduction  made  on  the  private  for- 
tunes of  the  citizens  by  the  Government  to  meet  public 
expenditures."  According  to  John  Stuart  Mill,  "  it  is  im- 
possible in  a  poor  country  to  impose  any  tax  which  will  not 
impede  the  increase  in  the  national  wealth." 

"  None  of  us  feel,  when  the  tax-gatherer  comes,  that  to 
be  taxed  is  a  favour;  or  that,  as  to  the  money  exacted,  we 

•^     as  individuals  are  the  better  off  for  its  having  been  taken 
*    from  us.    We  know  the  tax  is  a  burden ;  as  such  it  is  recog- 

'   /  nised  by  every  person  upon  whom  it  is  imposed." — Hon. 
Thomas  M.  Cooley. 

All  such  conceptions  of  the  position  of  the  state  in  re- 
spect to  the  taxpayer  are,  however,  monarchical,  implying 
the  relation  of  master  and  subject,  lord  and  serf;*  and 
from  such  a  point  of  view  this  general  idea  of  antagonism 
between  the  taxpayer  and  the  government  is  correct  and 
has  been  in  accord  with  the  great  mass  of  the  world's  ex- 
periences.    In  fact,  these  conceptions  undoubtedly  origi- 


*  When  the  Jewish  people,  weary  of  the  tax  despotism  of  a 
sacerdotal  class — i.  e.,  the  tribe  of  Levi,  to  whom  the  land  was 
held  to  have  been  given  by  Jehovah — manifested  an  intention  of 
scttino^  up  a  king,  the  prophet  Samuel  foretold  that  under  royalty 
taxation  would  be  still  more  oppressive,  and  "  this,"  he  said,  "  will 
be  the  manner  of  the  king  that  shall  reign  over  you:  He  will 
take  your  sons  and  appoint  them  for  himself,  and  set  them  to  ear 
his  ground  and  reap  his  harvest ;  and  he  will  take  your  daiighters 
to  be  cooks,"  etc. ;  "  and  your  fields,  and  your  vineyards,  and  your 
olive-yards,  even  the  best  of  them;  and  the  tenth  of  your  seed,  of 
your  sheep,  and  your  goodliest  young  men  and  put  them  to  his 
work,"  etc.  And  the  prediction  then  made  was  verified,  as  under 
like  circumstances  it  has  always  since  been. 


TAXATION  NOT  AN  EVIL.  207 

nated  with  the  first  or  old  economists,  who,  living  under 
arbitrary,  despotic  governments,  and  unable  to  comprehend 
the  modern  ideas  respecting  personal  liberty  and  a  free 
government,  came  to  the  only  conclusion  respecting  the 
nature  of  taxation  that  their  limited  sphere  of  observa- 
tion and  experience  would  permit.*  And  so  to-day,  under 
an  absolute  government,  the  interests  of  the  sovereign — 
czar,  sultan,  emperor,  king,  whatever  name  he  bears — are 
always  in  a  greater  or  less  degree  in  antagonism  to  those 
of  the  nation,  and  these  same  conceptions  have  also  to  a 
large  extent  been  generally  accepted  in  states  whose  form 
of  government  is  not  monarchical,  but  free  or  popular,  as 
in  the  United  States,  where,  through  lack  of  intelligence 
or  interest  on  the  part  of  the  general  public  and  of  the  law- 
makers, systems  for  raising  revenues  have  been  built  up 
and  tolerated  which  almost  without  exception  are  unjust 
in  their  administration  and  incidence.  When  an  eminent 
lawyer  and  member  of  the  Constitutional  Convention  of 
the  State  of  New  York  in  1867-68  stood  up  before  that 
assemblage  when  the  subject  of  taxation  was  under  con- 
sideration and  said,  "  I  insist  that  a  people  can  not  prosper 
whose  officers  either  work  or  tell  lies — there  is  not  an  assess- 
ment roll  now  made  out  in  this  State  that  does  not  both 
tell  and  work  lies,"  f  no  man  gainsaid  him,  for  no  man 
who  had  ever  given  any  attention  to  the  subject  could. 

But  such  conceptions  are  not  true  of  taxes  levied  under 
a  popular  form  of  government,  and  in  accordance  with 
conditions  essential  to  justify  their  right  to  be  called  taxes; 
for  there  is  no  one  act  which  can  be  performed  by  a  com- 
munity which  brings  in  so  large  return  to  the  credit  of 

*  With  the  old  economists  the  state  always  preponderates.  It 
is  the  master  of  the  citizen  instead  of  being  merely  the  steward 
of  the  nation.  "It  addresses  the  citizens  imperiously.  They  are 
its  contributablefi,  and  must  pay.  Accordinjj  to  such  doctrine,  life 
is  a  tollpate.  They  must  give  so  much  a  head  for  the  right  of 
living  in  the  country.  Man  is  the  debtor  of  the  state.  Man  pays, 
not  the  commodity,  and  the  citizen  remains  the  serf  of  the  state." 

"  Under  monarchical  right,  taxation  is  speculation  by  the  king 
upon  the  people.  In  a  Avord,  there  is  an  antagonism  between  those 
who  pay  and  those  who  levy  taxes.  Taxation  is  the  expression 
of  that  antagonism."-^A/.  Menier. 

t  Speech  of  Hon.  M.  I.  Townsend,  Delegate  at  Large,  Constitu- 
tional Convention  of  New  York,  1867-'G8.  Proceedings  and  De- 
bates, vol.  iii,  p.  1945. 


208    THE   THEORY  AND   PRACTICE  OP  TAXATION. 

civilization  and  general  happiness  as  the  judicious  expendi- 
ture, for  public  purposes,  of  a  fair  percentage  of  the  gen- 
eral wealth  raised  by  an  equitable  system  of  taxation.  The 
fruits  of  such  expenditure  are  general  education  and  gen- 
eral health ;  improved  roads,  diminished  expenses  of  trans- 
portation, and  security  for  life  and  property.  And  it  will 
be  found  to  be  a  general  rule  that  no  high  degree  of  civili- 
zation can  be  maintained  in  a  community,  and  indeed  that 
no  highly  civilized  community  can  exist,  without  compara- 
tively large  taxation ;  *  the  converse  of  this  proposition, 
however,  at  the  same  time  not  being  admitted,  that  the 
existence  of  high  taxes  is  necessarily  a  sign  of  high  civili- 
zation. 

It  is  interesting  to  note,  however,  that  as  civilization 
increases,  and  taxation  becomes  absolutely  greater,  it  also 
becomes  relatively  less.  Thus,  in  most  of  our  great  cities 
the  cost  of  the  water  supply  to  its  inhabitants  constitutes 
at  present  one  of  the  largest  items  of  municipal  expendi- 
ture— an  item  that  forty  or  fifty  years  ago  hardly  found 
a  place  in  municipal  accounts.  And  yet  the  cost  of  a  sup- 
ply of  even  the  minimum  quantity  of  water  now  regarded 
as  essential  to  meet  the  ordinary  requirements  for  personal 
cleanliness  and  health  would  be  very  much  greater  to  every 
citizen,  were  he  to  undertake  to  supply  himself,  even  if  it 
were  possible,  by  the  old  methods;  to  say  nothing  of  the 
comfort  and  luxury,  as  well  as  protection  against  loss  by 
fire,  which  an  increased  supply,  mad^e  possible  only  through 
a  greatly  increased  aggregate  of  taxation,  has  afforded. 

In  short,  taxation  assessed  and  levied  under  conditions 
clearly  conformable  to  reason  and  justice,  is  no  more  of 
an  evil  than  any  other  necessary  and  desirable  form  of  ex- 
penditure. Its  proper  exercise  does  not  diminish,  but 
protects  and  augments,  national  wealth,  and  is  no  more  a 

*  "  I  have  not  seen  an  instance  of  rent  being  very  low,  and  hus- 
bandry at  the  same  time  being  good."^ — Lowe,  quoted  hij  McCvlloch. 

"  It  is  universally  found  that  the  low  rents  absorb  the  largest 
proportion  of  the  product." — H.  C.  Carey,  On  Wealth,  p.  SJfl. 

"  An  ingenious  philosopher  has  calculated  the  universal  measure 
of  the  public  impositions  by  the  degrees  of  freedom  or  servitude 
that  accompany  them,  and  ventures  to  assert  that,  according  to 
an  invariable  law  of  Nature,  it  must  always  increase  with  the 
former  and  diminish  in  a  just  proportion  to  the  latter." — Statement 
by  Gibbon,  on  the  authority  of  Montesquieu. 


STATE  EXPENDITURES.  209 

burden  upon  the  people  of  a  state  than  the  payments  made 
for  the  care  and  profitahle  management  of  private  or  cor- 
porate ijivestments  of  capital  are  a  burden  upon  the  owners 
of  such  capital.  Indeed,  M.  Menier,  whose  study  of  taxa- 
tion entitles  him  to  be  regarded  as  an  authority,  contends 
that  the  analogy  between  the  expenditures  of  a  state  which 
have  to  be  remunerated  by  taxes  and  the  expenditures  of 
a  manufacturer  is  most  complete.  The  state,  he  says,  pos- 
sesses a  certain  extent  of  territory.  That  territory  has 
such  and  such  natural  utilities.  These  natural  utilities 
have  been  developed  by  labour  or  appropriated  by  man,  and 
the  capital  of  the  nation  is  the  ensemble  (the  whole)  of  the 
utilities  it  possesses.  In  the  case  of  a  private  person  the 
conditions  are  the  same.  His  capital  is  the  ensemble  of  the 
utilities  he  possesses.  The  result  which  he,  equally  with 
the  state,  seeks  to  attain,  is  the  same — namely,  to  make 
the  capital  which  they  control  fructify  to  the  greatest  pos- 
sible extent  for  the  benefit  of  the  citizens  of  the  state  on 
the  one  hand  and  the  individual  on  the  other ;  and  between 
the  expenditures  which  it  is  necessary  to  incur  for  the  at- 
tainment of  these  ends  on  the  part  of  the  state  and  the 
individual  there  is  no  essential  difference.  And  from  this 
analogy,  thus  urged  to  identity,  M.  Menier  deduces  the 
following  definition  of  taxes : 

They  represent,  he  says,  the  investment  of  the  capital 
of  the  nation,  or  state,  and  the  general  expenses  of  its  care 
and  development* 

It  is  obvious,  however,  that  M.  Menier's  analogy  would 
not  hold  good  under  a  system  which  failed  to  recognise  any 
difference  between  a  tax  and  an  arbitrary  exaction. 

*  M.  Menier,  in  proposing  the  above  definition,  himself  recog- 
nised the  necessity  of  accompanying  it  with  the  following  explana- 
tion :  "  When  I  say  that  taxes  '  represent  the  investment  of  na- 
tional capital,'  it  is,  of  course,  understood  that  I  speak  only  of 
that  of  the  investment  assigned  to  the  state,  and  that  I  am  very 
far  from  the  communistic  theory,  according  to  which  the  state, 
being  the  owner  of  the  national  capital,  should  turn  it  to  account 
for  its  own  profit.  In  the  useful  employment  of  the  capitals  of 
the  nation  there  are  an  individual  part  and  a  collective  part.  In 
my  definition  of  taxes  only  that  collective  part,  the  syndicate 
contribution,  is  taken  into  account." — A  Treatise  on  the  Taxation 
of  Fired  Capital,  by  M.  Menier,  of  the  French  Chamber  of  Depu- 
ties. Enplish  translation,  by  I.  0.  Gallegan,  Fellow  of  the  Uni- 
versity of  France;  London,  18S0. 


210    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

"  So  far  as  it  is  necessary  for  the  security  of  person  and 
property,  money  spent  for  tlie  support  of  government  is 
as  usefully  expended  as  is  the  purchase  of  clothing  or  pro- 
visions ;  but  when  the  sum  taken  exceeds  what  is  required 
for  that  purpose,  it  is  only  a  question  of  amount  between 
the  sovereign  of  India,  who  exacts  one  half  of  the  produce, 
and  the  legislator  of  Great  Britain  or  the  United  States, 
who  exacts  a  million  of  pounds  or  of  dollars  for  which  an 
equivalent  is  not  given."  * 

An  almost  self-evident  corollary  from  these  sound  de- 
ductions would  be,  that  any  tax  or  system  of  taxation  that 
did  not  protect  but  diminished  private  property  would 
tend  to  imperil  or  dry  up  the  sources  of  public  revenue. 

A  recognition  of  the  true  relation  which  a  just  and 
equitable  system  of  taxation  sustains  to  the  state  and  to 
the  capital  or  property  of  its  citizens,  and  also  of  the  fact 
that  under  such  a  system  a  tax  works  to  a  diminution  of 
the  income  of  the  property  taxed,  and  not  to  a  diminution- 
of  the  value  of  the  property  itself,  ought  to  effectually  ex- 
pose the  fallacy  of  the  somewhat  popular  idea,  that  taxa- 
tion is  really  a  gradual  (and  in  the  course  of  time  a  com- 
plete) confiscation  by  the  public  of  all  private  or  individ- 
ual property ;  and  that  in  a  certain  sense  no  man  by  reason 
of  taxation  can  be  regarded  as  having  a  perpetual  owner- 
ship of  any  property;  an  annual  tax  on  the  value  of  any 
property  of  one  and  a  half  per  cent,  with  five  per  cent  in- 
terest, exhausting  such  value  in  about  thirty  years.  If  tax- 
ation brought  no  returns,  either  direct  or  indirect,  to  the 
persons  or  property  assessed,  there  would  be  some  warrant 
for  regarding  it  as  an  act  of  confiscation;  but  if  it  pro- 
vides, as  every  correct  system  of  taxation  does,  for  a  cer- 
tain class  of  expenditures,  in  default  of  which  in  the  pres- 
ent state  of  society  there  would  be  no  adequate  protection 
to  property  and  no  encouragement  for  its  accumulation 
and  development,  then  there  is  no  more  reason  for  regard- 
ing taxation  as  confiscation  than  for  attributing  the  same 
effect  to  payments  for  wages,  rents,  repairs,  interest, |  in- 
surance, etc. 


•  H.  C.  Carey,  On  Wealth,  p.  343.     Philadelphia,  1888. 
tThis  same  fallacy  was  indeed  applied  to  interest  in  the  United 
States,  when  an  eminent  official  maintained  that  in  paying  interest 


HIGH   CIVILIZATION  AND   TAXATION.  211 

A  practical  illustration  of  the  truth  of  this  conclusion  v 
is  to  be  found  in  the  circumstance,  that  as  a  rule  the  class 
of  property  paying  the  highest  proportional  taxes  in  any 
community  is  the  most  profitable  or  desirable  to  its  owners. 
It  is  also  a  pertinent  question,  why  property  which  has 
paid  taxes  for  a  given  period — say  thirty  years — and  has 
so  been  absorbed  by  the  public,  should  continue  to  be  as- 
sessed; or  why,  if  the  person  popularly  regarded  as  the 
owner  of  such  property  should  refuse  to  pay  taxes,  the 
property  should  be  sold  for  taxes  when  it  has  already  been  y^ 
taken  to  itself  by  the  public. 

Another  point  of  interest  in  connection  with  this  sub- 
ject is,  that  if  a  high  degree  of  civilization  can  not  exist 
without  a  high  degree  of  taxation,*  the  methods  of  econo- 
mizing labour,  or,  what  is  the  same  thing,  of  producing  a 
greater  amount  of  product  with  a  given  amount  of  labour 
— conditions  which  make  high  civilization  possible — en- 
able a  government  progressive  in  this  respect  continually 
to  take  a  larger  share  of  the  results  of  the  work  of  its  citi- 
zens, expressed  in  terms  of  money,  without  really  increas- 
ing their  burdens  of  taxation.  "  Every  invention  and  dis- 
covery by  which  the  production  of  commodities  is  facili- 
tated and  their  value  reduced,  enables  individuals  to  spare 
a  larger  quantity  for  the  use  of  the  state.  The  sacrifice 
made  in  paying  taxes  consists  in  the  labour  or  in  the  cost 
of  the  money  or  produce  required  to  pay  them,  and  not 
in  the  amount  of  such  money  or  produce."  A  given 
amount  of  food  and  clothing,  iron,  steel,  copper,  leather 
goods,  paper,  and  transportation  can  now,  for  example, 
be  furnished  to  the  Government  of  the  United  States  for 
at  least  one  third,  and  probably  not  more  than  one  fifth, 
of  the  labour  required  to  produce  like  quantities  of  these 
same  commodities  or  services  in  1840;  while  the  wages 
paid  for  the  work  which  such  quantities  represent  or  neces- 

for  many  years  on  the  public  debt  the  people  of  the  country  had 
more  than  paid  off  the  principal,  and  were  therefore  morally  justi- 
fied in  repudiating  the  debt. 

*  Year  bv  year  the  public  demands  more  efficient  schools,  better 
postal  facilities,  better  harbours,  improved  paving,  drainage,  and 
lighting  of  streets,  a  stricter  abatement  of  nuisances  and  super- 
vision of  infectious  disease.  All  this  means  a  higher  standard  of 
public  well-being,  entailing,  however,  constantly  increased  public 
outlay. 


212    THE  THEORY  AXD  PRACTICE  OF  TAXATION. 

sitate  have  been  increased  from  fifty  to  seventy-five  per 
cent  and  upward.  In  1840  an  operative  in  tlie  cotton  mills 
of  Ehode  Island,  working  thirteen  to  fourteen  hours  a  day, 
turned  off  9, GOO  yards  of  standard  sheeting  in  a  year;  in 
1886  the  operative  in  the  same  mill  made  about  30,000 
yards,  working  ten  hours  a  day.  In  1840  the  wages  were 
$176  a  year;  in  1886  the  wages  were  $285  a  year. 

During  the  ten  years  from  1870  to  1880  the  increase 
in  the  number  of  hands  employed  in  anthracite  coal  min- 
ing was  32.2  per  cent,  as  compared  with  an  increase  of 
product  of  82.8  per  cent ;  while  in  the  case  of  copper  dur- 
ing the  same  period  the  ratios  were  15.8  and  70.8  per  cent 
respectively.  The  whole  tendency,  therefore,  of  the  modern 
conditions  of  production  is  not  to  entail  any  greater  sacri- 
fice on  the  part  of  the  taxpayers  for  the  support  of  the 
Government,  but  rather  to  diminish  it.  "  Governments 
have  precisely  the  same  interest  as  their  subjects  in  facili- 
tating production,  inasmuch  as  its  increased  facility  affords 
the  means  of  adding  to  the  quantity  of  produce  at  their  dis- 
posal without  really  adding  to  the  weight  of  taxation; 
whereas,  on  the  contrary,  a  diminished  facility  of  produc- 
tion must  either  diminish  in  an  ecpial  degree  the  produce 
appropriated  by  government  or  compel  it  to  lay  heavier  bur- 
dens on  its  subjects.  Public  wealth,  in  short,  is  merely  a 
portion  of  private  wealth  transferred  to  government,  and 
the  greater  the  amount  of  the  latter  the  greater,  of  course, 
will  be  the  magnitude  of  the  portion  that  may  be  conven- 
iently spared  for  public  piirposes." — J.  R.  McCuUoch. 

Whex  Taxation  becomes  an  Evil. — It  is  not  pre- 
tended that  taxation,  even  under  a  correct  system  of  assess- 
ment and  collection,  may  not  under  some  circumstances  be 
an  evil.     It  is  an  evil  when  through  extraordinary  or  in- 
judicious expenditures  of  the  state  it  is  excessive  and  de- 
/mands  too  large  a  proportion  of  the  annual  or  concurrent 
iy^  income  of  the  people  (in  the  form  of  rents,  interest,  profits, 
salaries,  and  wages),  out  of  which,  or  out  of  the  annnally 
augmented  wealth  of  a  country,  and  not  out  of  accumu- 
lated capital,  all  taxes  ought  to  be  paid,  and  as  a  rule  are 
paid.     The  economic  rule  governing  taxation  of  first  im- 
portance laid  down  by  Professor  Cossa  (Scienza  delle  Fi- 
.  nanzp)  is  "that  it  should,  when  possible,  tax  income  only, 
[^wlictlicr  national  or  individual,  but  spare  the  estate  itself." 


TAXATION  MAY  BE  AN   EVIL.  213 

If  the  burden  of  taxation,  or  the  amount  taken,  is  not 
fully  compensated  by  increased  production  or  increased 
saving,  it  becomes  one  of  the  greatest  evils  to  which  a  people 
can  be  subjected ;  for  under  such  circumstances  the  means 
of  future  production  will  be  impaired,  encroached  upon, 
and  the  country  will  necessarily  begin  to  retrograde. 

I  When  the  share  of  the  annual  product  falling  to  the 
workmen  of  any  country  is  barely  sufficient  to  support 
life  free  of  taxation,  then  the  burden  of  taxes  begins  to 
promote  pauperism.  |  It  takes  that  which  is  necessary  to 
existence  and  the  maintenance  of  energy.  This  is  now 
occurring  in  Italy.  The  taxation  of  Italy  probably  absorbs 
more  than  one  third  part  of  the  product  of  the  country. 
The  army  is  served  first,  the  workmen  second,  while  the 
women  become  diseased  and  the  children  die  by  lack  of 
adequate  nourishment. 

/  Taxation  is  also  an  evil,  though  in  a  lesser  degree,  when 
the  rate  assessed  is  not  the  same  upon  all  persons,  property, 
and  business  within  the  same  sphere  of  (business)  com- 
petition; when  it  is  made  an  instrumentality  for  effecting 
some  other  purpose  than  that  of  raising  revenue,  no  matter 
how  desirable  that  purpose  may  be;  and  when,  as  in  the 
United  States,  it  is  largely  indirect,  and  its  incidence  and 
amount  are  thereby  concealed  from  the  ultimate  tax- 
payers.* 

*  A  most  interesting  and  instructive  example  of  the  decay 
in  modern  times  of  a  considerable  state  due  to  radically  vicious 
methods  of  collecting  revenue  is  afforded  by  the  present  condition 
of  the  Asiatic  kingdom  of  Persia.  Its  typical  despotic  govern- 
ment, represented  by  the  Shah,  annually  demands  and  exacts 
a  large  amount  of  money  from  its  subjects  to  defray  the  expenses 
of  the  state,  but  not  more,  perhaps,  than  the  resources  of  the 
country  and  its  people  would  fairly  warrant  and  sustain,  if  it  were 
collected  by  intelligent  methods.  In  default,  however,  of  any 
knowledge  of  how  to  get  revenue  without  destroying  the  springs 
of  wealth,  the  method  of  taxing  is  so  irregular  both  as  to  time 
and  rate,  and  so  thoroughly  unjust  and  unequal,  as  to  impair 
the  value  and  security  of  property,  prevent  accumulation  and  free 
use  of  capital,  and  discoTirage  commerce.  A  British  ex]iert  has 
recently  reported  to  his  liome  government  that  if  a  qualified  Euro- 
pean or  American  could  bo  placed  at  the  head  of  the  exchequer 
at  Teheran,  who  was  allowed  such  control  that  no  penny  exacted 
from  the  people  of  the  state  shoidd  be  absorbed  on  its  way  to  the 
treasury,  or  be  taken  save  in  due  course  of  law,  he  might  yet  save 
Persia  and  drain  into  it  a  new  and  vigorous  Asiatic  population, 


214    THE   THEORY  AND  PRACTICE   OF   TAXATION. 

The  general  result  of  experience  is  also  to  the  effect 
that  when  excessive  and  exceptional  taxation  has  been  re- 
sorted to  by  a  state  for  the  purpose  of  regulating  or  de- 
stroying industries  or  traflic,  it  has  rarely  been  successful. 
The  economic  and  moral  lesson  deducible  from  such  experi- 
ence may  be  briefly  summarized  as  follows : 

Whenever  a  government  imposes  a  tax  on  any  product  of 
industry  so  high  as  to  suflicicntly  indemnify  and  reward  an 
illicit  or  illegal  production  of  the  same,  then  such  product 
will  be  illicitly  or  illegally  manufactured;  and  when  that 
point  is  reached,  the  losses  and  penalties  consequent  upon 
detection  and  conviction — no  matter  how  great  may  be  the 
one  or  how  severe  the  other — will  be  counted  in  by  the 
offenders  as  a  part  of  the  necessary  expenses  of  their  busi- 
ness; and  the  business,  if  forcibly  suppressed  in  one  local- 
ity, will  inevitably  be  renewed  and  continued  in  some  other. 
It  is  therefore  a  matter  of  the  first  importance  for  every 
government,  in  framing  laws  for  the  assessment  and  col- 
lection of  taxes,  to  endeavour  to  determine,  not  only  for 
fiscal  but  also  for  moral  purposes,  when  the  maximum 
revenue  point  in  the  case  of  each  tax  is  reached,  and  to 
recognise  that  in  going  beyond  that  point  the  government 
"  overreaches  "  or  cheats  itself. 

Increase  the  duties  (taxes)  on  imports  beyond  a  cer- 
tain point,  and  smuggling  springs  up  as  by  magic,  and  the 
most  cruel  and  unusual  punishments  utterly  fail  to  prevent 
it.  American  ingenuity  was  never  more  fertile  or  mani- 
fested in  a  more  remarkable  manner  than  in  the  evasion 
during  the  years  1864-'68  of  a  tax,  approximating  fifteen 
hundred  per  centum,  imposed  by  the  Federal  Government 
on  the  manufacture  and  sale  of  distilled  spirits,  resulting 
in  a  complete  failure  on  the  part  of  the  Government,  with 
almost  unlimited  military  resources  at  command,  to  en- 
force the  law,  and  a  final  abandonment  and  repeal  of  the 
tax.*    The  comparatively  recent  tax  imposed  by  the  United 

who  would  fill  its  now  deserted  but  fertile  plains,  and  organize 
a  commerce  in  which  all  the  world  stood  ready  to  participate  and 
furnish  the  instrumentalities  necessary  for  its  development. 

*  Out  of  a  consumption  of  at  least  fifty  million  proof  gallons 
of  distilled  spirits  of  domestic  production  in  the  United  States 
during  the  fiscal  year  18G7-'6S,  the  Federal  Government  collected 
a  tax  upon  less  than  seven  million  gallons,  the  sale  of  the  differ- 


EVASIONS  OP  TAXATION.  215 

States  on  oleomargarine,  with  a  view  of  destroying  its 
manufacture  and  preventing  its  use  as  an  article  of  food, 
has  been  so  far  ineffectual  that  its  production  and  consump- 
tion have  been  greater  than  they  were  before  the  law  au- 
thorizing the  tax  was  enacted.* 

More  than  a  century  ago  Adam  Smith  pointed  out  that 
such  taxes  "  tempt  persons  to  violate  the  laws  of  their 
country  who  are  frequently  incapable  of  violating  those  of 
natural  justice,  and  who  would  have  been  in  every  respect 
excellent  citizens  had  not  those  laws  made  that  a  crime 
which  Nature  never  meant  to  be  so." 

Some  other  fallacies  concerning  the  sphere  and  influ- 
ence of  taxation  which  have  obtained  popular  credence  may 
be  here  appropriately  noticed. 

Thus,  it  is  not  infrequently  assumed  that  any  injurious 
influences  of  excessive  or  unnecessary  taxation  are  largely 
or  wholly  imaginary,  inasmuch  as  they  are  really  returned 
to  the  contributors  (taxpayers)  through  the  expenditures 
of  Government;  which,  by  increasing  demand  for  com- 
modities and  services,  create  or  extend  markets,  maintain 
prices,  and  enlarge  the  sphere  or  opportunity  for  industrial 
employment,  and  favour  an  increase  in  the  supply  and  cir- 
culation of  money.  This  assumption  is  obviously  but  a 
reproduction  in  another  form  of  the  fallacy  (before  no- 
ticed) that  industry  can  be  stimulated  by  taxation;  and 
which  in  turn  finds  its  antitype  in  a  favourite  idea  of  the 
middle  ages,  that  the  destruction  or  waste  of  commodities 
"  made  good  for  trade  "  ;  and  which  maxim,  it  is  said,  a 
guild  of  glaziers  in  Paris  practically  carried  out  by  en- 
couraging their  apprentices  to  break  windows,  who  may 
have  attempted  to  justify  their  conduct  by  asking  them- 

ence  at  the  current  market  rates  of  the  year,  less  the  average  cost 
of  production,  returning  to  the  credit  of  corruption  a  sum  approxi- 
mating sixty  million  dollars. 

*  The  tax  on  oleomargarine  was  first  imposed  in  1886,  and,  with 
the  special  taxes  on  manufacturers  and  dealers  in  that  product, 
yielded  a  revenue  of  $72,3.948.  In  1898  the  amount  collected  from 
the  same  sources  was  $1,31.5,7'80.  The  quantity  produced  rose  from 
34.32.5..527  pounds  in  1888  (the  first  full  year  of  returns)  to 
57,516,136  pounds  in  1898.  A  tax,  bearing  the  same  objects  as 
that  on  oleomargarine,  to  control  its  manufacture,  sale,  and  ex- 
port, was  laid  in  1897  on  "filled  cheese,"  and  in  1898  on  "mixed 
flour." 


216    THE  THEORY  AND   PRACTICE  OP  TAXATION. 

selves  the  question,  "  What  would  become  of  the  glazing 
business  if  nobody  ever  broke  windows?" 
\/^  A  general  answer  to  this  fallac}^  is,  that  to  break,  spoil, 
or  waste  by  fire,  pestilence,  war,  famine,  shipwreck,  or  in- 
judicious and  unnecessary  taxation  and  public  expenditure, 
always  entails  a  loss  to  society;  and  if  these  results  give 
to  certain  class  interests  an  opportunity  to  perform  un- 
necessary work,  or  sell  products  at  an  advance  over  their 
current  prices  in  the  world's  market,  and  thereby  inflict 
imnecessary  and  additional  taxes  on  other  individuals,  it 
can  not  be  regarded  as  other  than  an  evil,  and  prejudicial 
\/to  public  interests. 

To  those  who  live  on  the  produce  of  unnecessary  taxa- 
tion and  correlative  governmental  expenditure,  any  eon- 
sequent  encouragement  of  industry  by  increasing  demand 
and  extension  of  markets,  will  very  naturally  seem  to  be 
in  the  highest  degree  beneficial.  But,  in  order  that  in- 
dustry may  be  truly  benefited,  the  market  must  be  real 
and  not  artificial,  or  one  created  by  unnecessary  taxation 
and  expenditure.  "  It  is  contradictory  to  suppose  that 
either  individvials  or  states  should  receive  the  smallest  bene- 
fit from  the  demand  of  those  whom  they  have  previously 
furnished  the  means  of  buying.  This,  however,  is  always 
the  case  with  buyers  who  live  on  the  produce  of  taxation. 
And  to  keep  up  useless  regiments  and  overgrown  establish- 
ments, on  the  pretence  of  encouraging  industry  by  increas- 
ing demand,  is  quite  as  irrational  as  it  would  be  for  a 
shopkeeper  to  attempt  to  increase  his  business  and  get  rich 
by  supplying  his  customers  with  money  to  buy  his  goods."  * 

Hamilton  (a  Scotch  economist)  puts  the  case  even  more 
forcibly.  "  To  argiie,"  he  says,  "  that  the  money  raised  in 
taxes,  being  spent  among  those  who  pay  it,  is  therefore  no 
loss  to  them,  is  no  less  absurd  than  the  defence  of  a  house- 
breaker who,  being  convicted"  of  carrying  off  a  merchant's 
money,  should  plead  that  he  did  him  no  injury,  for  the 
money  would  be  returned  to  him  in  the  purchase  of  the 
commodities  in  which  he  dealt."  f 

"  It  is  obvious  that  the  services  rendered  by  the  public 

*  McCulloch,  Treatise  on  the  Principles  and  Practical  Influence 
of  Taxation,  second  edition,  p.  14. 

t  On  the  National  Debt,  third  edition,  p.  35. 


UNNECESSARY   TAXATION.  217 

functionaries  who  receive  taxes  form  the  only  return  made 
to  the  contributors.  And  it  is  undoubtedly  true  that  these 
services  are  of  the  highest  value,  and  that,  when  neither 
the  number  nor  the  salaries  of  those  by  whom  they  are 
rendered  are  unnecessarily  large,  they  constitute  a  full  and 
fair  equivalent  for  the  sums  expended  upon  them.  But 
whatever  is  beyond  this — whatever  is  expended  in  overpay- 
ing public  functionaries,  or  in  maintaining  such  as  are  un- 
necessary— is  wholly  lost  to  the  taxpayers,  or  is  not  in  any 
way  compensated  to  them."  * 

""  We  might  as  well  say  that  it  would  be  a  good  thing  to 
put  snags  in  the  rivers,  to  fell  trees  across  the  roads,  to  dull 
all  our  tools,  as  to  say  that  unnecessary  taxation  could 
work  a  blessing." — Prof.  W.  G.  Sumner. 

Some  writers  of  repute  have  advocated  the  special  im- 
position of  taxes  on  the  ground  that  they  act  as  stimulants 
to  industry.  M.  Gamier  entertained  this  opinion.  The 
late  J.  R.  McCulloch,  who  wrote  learnedly  on  the  Prin- 
ciples of  Taxation,  favoured  such  practice  on  the  part  of 
government,  provided  the  taxation  was  "  moderate."  But 
of  taxation  employed  for  such  object  which  was  not  mod- 
erate he  wrote  as  follows : 

"  The  effect  of  exorbitant  taxes  is  not  to  stimulate  in- 
dustry, but  to  destroy  it.  The  stimulus  given  by  excessive 
taxation  to  industry  has  been  not  inaptly  compared  to  the 
stimulus  given  by  the  lash  to  the  slave — a  stimulus  which 
the  experience  of  all  ages  and  nations  has  proved  to  be  as 
ineffectual  as  it  is  inhuman,  when  compared  to  that  which 
the  expectation  of  improving  his  condition  gives  to  the 
productive  energies  of  the  citizen  of  the  free  state." 

The  direct  beneficial  agency  not  merely  of  moderate 
but  of  most  excessive  taxation,  as  a  stimulant  to  industry, 
is  also  obviously  a  fundamental  principle  in  every  so-called 
"  protective  tariff  system." 

Very  curiously,  the  best  refutation  of  these  ideas  was 
made  by  the  late  H.  C.  Carey,  in  a  Treatise  on  Wealth, 
published  in  1838.  After  indorsing  the  statement  of  Mr. 
McCulloch  as  to  the  influence  of  exorbitant  taxation  on 
industry,  and  the  correctness  of  his  analogy  between  the 
stimulus  afforded  thereby  and  that  imparted  by  the  lash, 

*  McCulloch,  Treatise  on  Taxation,  p.  14. 
15 


218    THE   THEORY   AND  PRACTICE   OP  TAXATION. 

he  antagonizes  the  proposition  that  the  effect  of  even  7nod- 
erate  taxation  imposed  as  a  stimulus  to  industry  can  be 
in  any  degree  beneficial,  by  asserting  that  what  is  true  of 
the  influence  of  exorbitant  taxation  in  this  respect  "  is 
equally  true  of  all  unnecessary  burdens  (of  taxation), 
whether  great  or  small." 

"If  taxation  be  a  stimulus,"  he  says,  "  the  advantage 
must  increase  with  its  extent,  and  taking  2s.  per  week  must 
do  more  good  than  taking  l,s.  Moderation  depends  upon 
habit.  We  think  Mr.  McOulloch  has  fallen  into  the  same 
error  with  the  man  who  attributes  increased  vigor  to  two 
glasses  of  brandy,  while  he  deprecates  the  drinking  of  a 
quart  as  likely  to  produce  intoxication.  The  man  in  sound 
health  who  drinks  two  glasses  will  not  work  as  well  as  he 
who  drinks  none,  but  he  will  do  so  much  better  than  his 
neighbours  who  drink  by  the  quart  that  it  may  be  sup- 
posed that  his  superiority  results  from  the  glasses  taken, 
when  it  really  arises  out  of  the  six  that  he  has  forborne 
to  take.  If  taxation  is  good,  so  is  the  lash :  both  will  make 
people  work,  but  neither  will  make  them  work  well.  The 
moment  we  admit  that  taxation  in  any  case  tends  to 
promote  industry,  it  is  impossible  to  say  where  we  shall 
stop." 

Another  fallacy  which  has  obtained  credence,  especially 
in  recent  years  in  the  United  States  and  even  among  its 
legislators,  is  that  the  burden  of  taxation  is  increased  by 
a  fall  in  the  prices  of  commodities  which  represent  the 
work  that  furnishes  the  money  with  which  taxes  are  paid. 
It  owes  its  existence  and  tolerance  to  the  non-recognition 
of  a  principle  of  taxation  which  has  also  been  thus  set 
forth  by  Mr.  J.  E.  McCulloch : 

"  The  amount  of  a  tax  is  not  to  be  estimated  by  the 
hull:  or  species  of  the  produce  which  it  transfers  from  in- 
dividuals to  government  or  to  creditors  in  general,  hut  ex- 
clusively by  its  value.  A  heavy  tax  consists  in  the  abstrac- 
tion of  a  large  value,  and  a  light  taxation  in  the  abstraction 
of  a  small  value.  When  a  fall  takes  place  in  the  cost  of 
producing  any  article,  its  price  necessarily  declines  in  an 
equal  degree,  and  its  producers  are  obliged  to  dispose  of 
a  proportionally  larger  quantity  to  obtain  the  means  of 
obtaining  the  same  amount  of  taxes.  But  it  is  an  obvious 
error  to  suppose,  as  is  very  commonly  done,  that  the  burden 


PRICES  AND  TAX  BURDENS.  219 

of  taxation  is  consequently  increased.  The  value  paid  by 
contributors  remains  the  same,  and  it  is  by  values  and  not 
by  quantities  that  the  weight  of  taxation  is  to  be  measured. 
If  through  improvements  in  agriculture,  machinery,  or 
any  other  cause,  two  quarters  of  wheat  or  two  yards  of 
cloth  were  produced  with  the  same  expenditure  of  capital 
and  labour  that  is  now  required  to  produce  one  quarter  or 
one  yard,  it  would  be  no  hardship  to  give  double  the  quan- 
tity of  wheat  or  cloth  in  payment  of  taxes."  * 

A  failure  to  recognise  and  understand  this  principle 
has  led  to  much  erroneous  reasoning  on  the  subject  of 
taxation,  and  finds  a  curious  practical  illustration  in  the 
following  record  of  recent  experience.  Thus  in  the  so- 
called  bimetallic  discussion  in  the  United  States  it  has  been 
unqualifiedly  asserted  that,  owing  to  the  remarkable  de- 
cline in  the  average  prices  of  general  commodities  (esti- 
mated at  about  eighteen  per  cent  from  1867  to  1877,  and 
thirty-one  per  cent  from  1867-'77  to  1886-88),  and  which 
in  turn  has  been  assumed  to  have  been  occasioned  by  the 
demonetization  of  silver  and  consequent  appreciation  in 
the  value  or  purchasing  power  of  gold,  the  burden  of  the 
national  debt  of  the  United  States  and  also  all  private 
debts,  especially  such  as  are  in  the  nature  of  mortgages  on 
land  or  on  other  productive  fixed  capital,  has  been  greatly 
increased,  inasmuch  as  a  greater  effort  of  labour  on  an  in- 
creased amount  of  the  products  of  labour — typically  cotton 
and  iron — had  become  necessary  to  liquidate  such  debts 
and  the  interest  thereon,  f  The  error  in  such  reasoning 
or  assumption  is  found  in  the  circumstance  that  no  con- 
sideration is  given  or  allowance  made  for  the  different 


*  McCulloch,  Treatise  on  Taxation,  second  edition,  p.  4.  The 
wording  is  a  little  different. 

t  In  1885  a  memorial  signed  by  ninety-five  members  of  the 
United  States  House  of  Representatives  of  the  Forty-eighth  Con- 
gress and  presented  to  the  President  of  the  United  States  contained 
the  following  statement:  "Eighteen  million  bales  of  cotton  were 
the  equivalent  in  value  of  the  entire  interest-bearing  national  debt 
in  lSfi.5  (.$2,221,000,000)  :  but  it  will  take  thirty-five  million  bales 
at  the  price  of  cotton  now  (1885)  to  pay  the  remainder  of  such  debt 
($1,190,000,000).  Twentv-five  million  tons  of  bar  iron  would  have 
paid  the  whole  debt  (.$2,674,000,000)  in  1865;  it  will  now  take 
thirty-five  million  tons  to  pay  what  remains  ($1,375,000,000)  after 
all  that  has  been  paid." 


220    THE  THEORY  AND   PRACTICE  OF  TAXATION. 

results  of  labour  at  the  periods  of  price  comparisons,  and 
that  the  real  cost  of  producing  the  staple  commodities  of 
the  United  States,  or  the  effort  needed  to  produce  a  given 
amount  of  general  merchandise,  or  the  number  of  days' 
work  put  into  each  piece  of  such  merchandise,  has  on  an 
average  decreased  during  these  periods  more  than  their 
market  prices  have  decreased,  so  that  instead  of  the  decline 
in  the  prices  of  commodities  under  consideration  having 
increased  the  burden  upon  labour  of  national  and  other 
debts  created  before  such  decline,  the  burden  has  been 
lessened  to  just  the  extent  that  the  average  cost  of  produc- 
ing commodities  has  declined  to  a  greater  degree  than 
their  average  market  prices.  Thus  all  authorities  are  sub- 
stantially agreed  that  there  are  few  departments  of  indus- 
trial effort  in  which  the  saving  of  time  and  work  in  the 
twenty  to  thirty  years  next  anterior  to  1890  was  at  least 
forty  per  cent,  and  in  not  a  few  instances  has  been  much 
greater  (in  the  manufacture  of  boots  and  shoes,  for  ex- 
ample, eighty  per  cent).  In  North  Carolina  the  relative 
increase  in  cotton  product  and  population  from  1870  to 
1880  was  as  4.5  to  1.  With  slight  changes  in  the  relation 
of  labour  to  product,  the  cotton  crop  of  the  United  States 
increased  seventy-six  per  cent  between  the  years  18GG  and 
1872,  and  forty-nine  per  cent  between  1872  and  1886. 
Recent  investigations  have  shown,  in  the  case  of  certain 
leading  articles  in  hardware,  that  a  given  quantity  which 
represented  a  labour  cost  in  1870  of  a  million  dollars 
could  be  afforded  in  189-1  for  a  like  cost  of  $444,444.  An- 
other striking  illustration  of  the  present  cheapness  of 
manufactured  articles  per  unit  and  as  measured  in  terms 
of  labour  payments  per  hour  or  day,  compared  with  former 
recent  periods,  and  as  the  result  of  present  industrial  con- 
ditions, is  found  in  the  statement  that  wire  nails  are  now 
so  cheap  that,  if  a  carpenter  drops  a  nail,  it  is  cheaper  to 
let  it  lie  than  take  time  to  pick  it  up ;  and  the  correctness 
of  which  has  been  demonstrated  as  follows :  "  Assuming 
that  it  takes  a  carpenter  ten  seconds  to  pick  up  a  nail 
which  he  has  dropped,  and  that  his  time  is  worth  thirty 
cents  per  hour,  the  recovery  of  the  dropped  nail  would  cost 
0.083  cent.  There  are  two  hundred  sixpenny  nails  in  a 
pound,  and  they  are  worth  on  an  average  1.55  cent  per 
pound,  making  the  value  of  one  nail  0.0077  cent.    In  other 


CONDITIONS  IN  THE  UNITED  STATES.  221 

words,  it  would  not  pay  to  pick  up  ten  nails  at  the  assumed 
loss  of  time  and  rate  of  pay  of  the  carpenter." 

On  the  other  hand,  wages  have  increased  in  the  United 
States  since  1870  in  an  approximative  ratio  with  the  in- 
crease in  the  effectiveness  of  labour  in  producing  commodi- 
ties, and  touched  the  highest  point  ever  known  about  the 
year  1890.  During  the  same  period  debtors  have  gained 
greatly  by  the  decrease  in  the  cost  of  living,  and  a  conse- 
quently increased  opportunity  for  laying  up  a  surplus  for 
meeting  tax  demands  and  other  purposes.  The  assump- 
tion that  the  comparatively  recent  fall  in  the  price  of  com- 
modities in  the  United  States  has  increased  the  burden  of 
taxation  upon  its  people,  therefore  merits  the  characteriza- 
tion of  being  one  of  the  most  irrational  and  fictitious  of 
popular  economic  fallacies. 


JCHAPTER  X. 


RELATION"  OF  TAXATION  TO  THE  STATE. 

The  next  step  of  importance  in  this  discussion  is  to 
recognise  clearly  the  relation  which  the  exercise  or  func- 
tion of  taxation,  as  it  has  been  defined,  sustains  to  the 
state. 

Origin  and  Justification  of  Taxation. — The  ques- 
tion at  once   suggests  itself,   "  By  what   right   does  that 
entity  which  we  call  the  state,  whatever  may  be  its  con- 
crete form,  and  whether  its  powers  are  exercised  by  a  single 
man  (CjBsar),  by  a  particular  class,  or  by  a  majority  of 
citizens,  take  from  the  individual  that  which  hitherto  was 
absolutely  his,  annul  his  ownership,  and  convert  the  thing 
of  value  to  its  own  use  ?  "  *      How  happens  it  that  the 
~  .  exercise  of  this  right  is  so  absolute  that  the  state  requires 
^^4^he  citizen  to  set  apart  from  the  earnings  of  his  labour  a 
.fj^certain  sum  for  its  use  before  he  applies  any  of  those  earn- 
"^  ings  to  the  support  of  his  family?  f 

^H,^  On  this  point  there  has  been  considerable  speculation 
4and  philosophizing.  It  has  been  assumed  that  there  must 
<5  be  an  ajrhi^jjTTrJjiipTjerl  contract  between  the  state  and  the 
itizen,  in  virtue  of  which  the  state  supplied  a  certain 
amount  of  protection  to  life  and  property,  and  for  which 
the  citizen  in  return  pays  an  equivalent  in  money,  mei;^ 


*  "  Titius  is  to  render  to  Cfesar  that  which  is  Caesar's.  But  when 
Caesar  comes  to  take  the  shock  of  wheat  or  the  firstling  of  the 
flock  Titius  may  well  ask,  as  he  eives  them  up:  Why  are  they 
Caesar's  rather  than  mine?  What  right  to  them  has  Cfesar  and 
not  my  neighbour  Maevius?"  Tyranny  in  Taxation.  Theodore 
Bacon.    New-Englander,  1867. 

t  The  probate  judiciary  of  the  State  of  Connecticut  has  recently 

held  that  in  the  settlement  of  insolvent  estates  taxes  due   prior 

to  the  assignment  of  an  assigning  debtor  should   be  regarded  as 

preferred  claims,  and  as  such  should  be  paid  in  full  by  the  trustee. 

222 


?- 


THE  STATE  AND  TAXATION.  223 

chandise,  or  personal  service.     There  is,  however,  no  his-] 
torical  example  of  any  such  contract.  / 

Others  have  sovight  to  refer  the  origin  of  this  right  on  -;;;;; 

the  part  of  the  state  to  take  the  property  of  the  citizen  to  Z 

an  antecedent  right  of  might,  and  have  assumed  that,  as  /^ 

the  ruling  power,  whether  monarch  or  majority,  is  phys-  >. 

ically  able  to  take  and  apply  to  its  own  use  all  that  the 
individuals  ruled  over  may  call  their  own,  it  is  therefore 
legitimate  and  morally  correct  for  it  to  exercise  this  right  >• 

and  take  such  part  of  its  subjects'  property  as  it  may  see  fit.  ^ 

A  tliird  and  more  plausible  theory  is,  that  as  all  rights  C 

of  property  are  conventional  and  not  natural,  and  without  -5 

the  intervention  of  the  state  by  its  laws  could  not  be  en-         '^^^'^^r^- 
forced  or  protected,  and,  indeed,  could  hardly  be  said  to  ^ 

exist ;  therefore  the  state  is  the  source  of  all  title,  and  the  -r 

individual  holds  only  by  grant  or  sufferance  of  the  state. 
From  these  premises  it  follows  that  the  state,  in  compelling  ^_^^  ' 
contributions  from  its  subjects,  or,  as  is  ordinarily  ex- 
pressed, in  "  taxing,"  is  in  the  position  of  an  absolute 
proprietor  who  takes  simply  what  is  his  own.  This  was 
the  theory  accepted  and  practically  carried  out  by  all  the 
monarchs  of  Europe  in  the  seventeenth  century,  or  about 
two  hundred  and  fifty  years  ago,  and  defended  by  the  best 
and  most  eminent  men  of  the  time,  as  Bossuet  in  France 
and  most  of  the  great  jurists  of  England  under  Charles  I, 
as  was  exemplified  in  the  case  of  John  Hampden,  who  was 
prosecuted  for  refusing  to  pay  an  arbitrary  tax  known  as 
"  ship  money  "  ;  and  the  decision  in  which,  by  the  High 
Court  of  Exchequer,  placed  the  property  of  every  Eng- 
lishman at  the  disposal  of  the  crown.  It  was  also  so  clearly 
expressed  by  Louis  XIV  that  his  words  are  worthy  of  exact 
citation.  Thus,  in  a  manual  which  he  wrote  for  the  guid-  ^ 
ance  of  his  heir  and  successor,  the  Dauphin,  he  says :  "  I 
hold  the  place  of  God.  To  me  belong  exclusively  the  lives 
and  fortunes  of  my  people.  The  nation  resides  entirely 
in  the  person  of  the  monarch.  Kings  are  absolute  masters, 
and  may  naturally,  fully,  and  freely  dispose  of  all  the 
property  possessed  by  either  the  clergy  or  laity,  to  use  at 
all  times  like  wise  stewards  and  according  to  the  needs 
of  the  state." 

Herbert  Spencer  refers  the  growth  of  revenue,  which     <      f^ 
involves  the  right  to  take  it,  from  the  outset,  like  the     ^  \ 


it 


\ 


r 


224    THE  THEORY  AND  PRACTICE   OF  TAXATION. 

growth  of  political  headship  which  it  accompanies,  directly 
or  indirectly,  to  the  results  of  war.  "  The  property,"  he 
says,  "  of  conquered  enemies — at  first  goods,  cattle,  pris- 
oners, and  at  a  later  stage  land — coming  in  larger  share 
to  the  leading  warrior,  increases  his  predominance.  To 
secure  his  good  will,  which  it  is  now  important  to  do,  pro- 
pitiatory presents  and  help  in  labour  are  given ;  and  these, 
as  his  power  further  grows,  become  periodic  and  com- 
pulsory. Making  him  more  despotic  at  the  same  time 
that  it  augments  liis  kingdom,  continuance  of  this  process 
increases  his  ability  to  enforce  contributions,  alike  from 
his  original  subjects  and  from  tributaries ;  while  the  neces- 
sity for  supplies,  now  to  defend  his  kingdoms,  now  to  in- 
vade adjacent  kingdoms,  is  ever  made  the  plea  for  increas- 
ing his  demands  of  established  kinds  and  for  making  new 
ones.  Under  stress  of  the  alleged  needs,  portions  of  their 
goods  are  taken  from  subjects  whenever  they  are  exposed 
to  view  for  purpose  of  exchange.  And  as  the  primitive 
presents  of  property  and  labour,  once  voluntary  and  vari- 
able, but  becoming  compulsory  and  periodic,  are  eventually 
commuted  into  direct  taxes;  so  those  portions  of  the 
trader's  goods  which  were  originally  given  for  permission 
to  trade,  and  then  seized  as  of  right,  come  eventually  to  be 
transformed  into  percentages  of  value  paid  as  tolls  and 
duties.  But  to  the  last  as  at  first,  and  under  free  govern- 
ments as  under  despotic  ones,  war  continues  to  be  the 
usual  reason  for  imposing  new  taxes  or  increasing  old  ones ; 
at  the  same  time  that  the  coercive  organization  in  past 
times  developed  by  war,  continues  to  be  the  means  of  ex- 
acting them."  *  Mr.  Spencer  further  asserts  that  "  in  the 
early  stages  of  social  evolution  nothing  answering  to  reve- 
nue exists."  These  conclusions  of  Mr.  Spencer  seem,  how-i 
ever,  to  be  singularly  imperfect,  inasmuch  as  they  do  not^ 
appear  to  recognise  that  there  can  be  such  things  as  volun- 
tary or  beneficial  taxes,  or  that  society  in  order  to  exist 
would  in  the  course  of  time  institute  taxation,  even  if 
there  had  been  no  war.  He  does,  however,  recognise  that 
the  increasing  progress  and  complexity  of  civilization,  by 

*  Abundant  illustrations  from  historical  or  recent  experiences 
of  the  successive  stages  of  such  assumed  evolution  of  taxation  are 
given  by  Mr.  Spencer  in  the  chapter  On  Reveniie  in  his  Political 
Institutions,  Principles  of  Sociology,  vol.  ii,  p.  557. 


SOVEREIGNTY  AND  TAXATION.  225 

continually  enlarging  its  sphere  and  functions,  would  con- 
tinually necessitate  an  increase  of  taxation. 

All  such  speculations  and  theories  as  to  the  origin  and 
sphere  of  the  rights  of  government  in  respect  to  appropriat- 
ing the  property  of  its  subjects  or  citizens,  although  of  phil- 
osophic interest,  are,  however,  of  little  practical  impor- 
tance.* It  is  only  necessary  to  recognise  that  in  some  form 
the  organization  or  entity  which  we  call  the  state  exists  for 
certain  definite  purposes,  even  though  they  be  difficult  of 
precise  limitation ;  and  to  analyze  the  situation,  as  we  find 
it,  to  obtain  a  satisfactory  answer  to  the  question  at  issue. 
For  the  command  of  a  constant  and  adequate  revenue  being 
beyond  dispute  absolutely  essential  to  the  existence  of 
organized  government,  the  power  to  compel  or  enforce 
contributions  from  the  people  governed,  or,  as  it  is  termed, 
"  to  tax,"  is  inherent  in  and  an  incident  of  every  sover- 
eignty, and  rests  upon  necessity,  f  The  question  of  the 
obtaining  of  such  revenue  obviously,  therefore,  is  the  ques- 
tion of  first  importance  in  the  economy  of  a  state;  the  one 
in  comparison  with  which  all  others  are  subordinate.  For 
without  revenue  (and  a  government  never  has  any  resources 
except  what  it  has  obtained  from  the  people),  regularly 

*  Edmund  Burke,  the  great  Irish  statesman,  is  on  record  as 
characterizing  any  discussion  of  the  abstract  right  of  taxation 
in  place  of  the  actual  facts  of  the  situation,  as  belonging  to  the 
domain  of  political  metaphysics,  "  a  great  Serbonian  bog  in  which 
armies  whole  have  sunk,"  and  that  it  was  by  fighting  for  such 
"  a  phantom,  a  quiddity,  a  theory  that  wants  not  only  a  substance 
but  even  a  name,"  that  English  statesmen  threw  away  their  Ameri- 
can colonies. 

t  "  When  we  ask.  What  right  has  the  state  to  infringe  upon 
man's  natural  freedom?  we  are  involved  in  the  diflficulty  that 
there  are  no  rights,  in  the  strict  sense  of  the  term,  antecedent  to 
the  state.  All  rights  that  we  know  anything  about  are  either  legal 
or  moral.  The  right  of  the  state  to  govern  man  can  not  be  derived 
trom  law,  for  law  is  the  creature  of  the  state.  If  it  is  a  moral 
right,  it  must  rest  on  the  same  basis  on  which  all  morality  rests, 
and  this  must  be  either  conscience,  or  divine  revelation,  or  utility. 
Of  course,  consent  has  nothing  to  do  with  morality.  Conscience, 
furthermore,  will  not  do  as  a  basis  for  the  state,  for  conscience 
does  not  enlighten  us  further  than  to  let  us  know  that  we  ought 
to  obey  the  state  if  it  is  right  to  do  so.  Revelation,  also,  answered 
only  so  long  as  a  direct  and  miraculous  connection  was  believed 
to  exist  between  human  and  divine  authority.  This  leaveT'notlimg" 
but  utility  as  the  basis  for  the  moral  right  of  the  state  to  inter- 
fere with  man's  natural  freedom." — Anonymous.  "" 


226     THE   THEORY   AND   PRACTICE   OF   TAXATION. 

and  uniformly  obtainable,  no  governmental  machinery  for 
the  protection  of  life  and  property,  through  the  dispensing 
of  justice  and  the  providing  for  the  common  defence,  could 
long  be  maintained ;  and  in  default  thereof  production 
would  stop  or  be  reduced  to  a  minimum,  accumulations 
would  cease  or  become  speedily  exhausted,  and  civilization 
would  inevitably  give  place  to  barbarism  and  the  wilder- 
ness. For  like  reasons  also,  or  as  the  old-time  Latin  maxim, 
"  saJus  popiili  suprcma  lex,"  concretely  expresses  it,  the 
state  holds  command  over  the  lives  and  liberties  of  its 
citizens  equally  as  it  does  over  their  fortunes.  In  fact, 
the  sovereignty  of  a  state  consists  and  exemplifies  itself  in 
the  power  to  abridge  the  liberty  of  the  individual  citizen 
and  to  take  his  property;  and  the  character  of  every  gov- 
ernment is  mainly  determined  by  the  intent  and  purpose 
for  which  these  two  great  functions  from  which  all  its 
force  proceeds  are  exercised. 

;  The  Sphere  of  Taxation. — The  sequence  of  these 
(premises  is  no  less  important,  or  rather  of  transcendent  im- 
Iportance;  for  if  the  power  of  taxation  is  an  incident  of 
sovereignty,  as  it  confessedly  is,  then  the  right  to  exercise 
that  potver  must  he  coextensive  with  that  of  which  it  is  the 
incident;  or,  in  other  words,  as  the  power  of  every  com- 
plete sovereignty  over  the  persons  and  property  of  its  sub- 
jects is  unlimited,  the  power,  therefore,  in  every  such  sover- 
eignty to  compel  contributions  for  the  service  of  the  state, 
or,  as  we  term  it,  "  to  tax,"  must  be  unrestricted.  "  The 
power  to  tax  is  therefore  the  strongest  and  most  pervading 
of  all  the  powers  of  government,  reaching  directly  or  in- 
I  directly  to  all  classes."  * 

The  power  to  tax,  said  Chief-Justice  Marshall,  in  giv- 
ing the  opinion  of  the  United  States  Supreme  Court  deny- 
ing the  right  of  Maryland  to  tax  the  Bank  of  the  United 
States  (McCulloch  vs.  Maryland,  4  Wheaton,  pp.  316-431), 
"  involves  the  power  to  destroy,  and  may  be  legitimately 
exercised  on  the  objects  to  which  it  is  applicable  to  the 
utmost  extent  to  which  the  Government  may  choose  to 
carry  it."  In  the  case  of  Weston  vs.  the  City  of  Charles- 
ton, the  same  court,  by  the  same  eminent  authority,  also 

•  United  States  Supreme  Court ;  Loan  Association  vs.  Topeka, 
20  Wallace,  655. 


^S, 


EXTENT   OP  POWER.  227"" 

held  that  "if  the  right  to  impose  a  tax  exists,  it  is  a  right 
ivhich,  in  its  nature,  acknowledges  no  limits.  It  may  he 
carried  to  any  extent  within  the  jurisdiction  of  the  State 
or  corporation  which  imposes  it,  which  the  will  of  such 
State  or  corporation  may  prescribe."  And  in  a  more  recent 
case  (Loan  Association  vs.  Topeka,  20  Wallace)  the  court, 
through  the  late  Justice  Miller,  again  expressed  itself  to 
the  same  effect  as  follows :  "  Given  a  purpose  or  object  for 
which  taxation  may  be  lawfully  used,  and  the  extent  of  its 
exercise  is  in  its  very  nature  unlimited." 

The  government  of  a  complete  sovereignty  can  there- 
fore tax  all  that  it  can  lay  hands  on  to  enforce  the  tax —  - 
men,  women,  and  children ;  all  property  and  business —  H^v 
and  the  power  may  be  exercised  again  and  again  until  the  ^^ 
subject  taxed  is  exhausted  or  the  privilege  can  be  no  longer  rf^^ 
exercised.     This  statement  finds  abundant  illustration  in, 
history  of  people  absolutely  impoverished  by  taxation,  and  ct    0*    5" 
of  individuals  who  have  been  sold  into  slavery  because  of 
their  inability  to  pay  the  taxes  that  the  state  or  ruling^j^jj^j 
power  had  assessed  upon  them.     The  popular  idea  is  that 
such  examples  of  the  extreme  exercise  of  power  on  the  part 
of  the  state  to  compel  contributions  have  passed  into  his- 
tory; but  this  is  not  the  case.     In  every  purely  despotic 
Government  there  is  no  lirnitation  on  its  exercise  except . 
such  as  arises  from  the  inability  of  the  subject  to  con- 
tribute.    The  heacT  of  the  state — shah,  czar,  or  emperor—-, 
decides  how  much  shall  be  exacted  and  the  time  and  man- 
ner of  exaction;  and  not  infrequently  the  amount  taken 
is  only  a  little  short  of  what  is  necessary  to  leave  to  th? 
producer  in  order  to  enable  him  to  maintain  a  mere  ani- 
mal existence.     Thus  in  Eussia  the  present  governmental 
exaction — under  the  name  of  taxes — from  the  agricultural 
peasant  is  understood  to  amount  to  about  forty-five  per 
cent  of  his  annual  product  or  earnings. 

In  1890  the  excise  taxation  of  Russia — which  is  mainly 
levied  upon  distilled  spirits  and  other  alcoholic  drinks, 
tobacco,  sugar,  kerosene,  and  matches — is  reported  to  have 
amounted  to  seventy-five  per  cent  of  the  value  of  the  arti- 
cles taxed.  On  the  other  hand,  the  Russian  customs  duties 
in  the  same  year  averaged  but  thirty- four  per  cent  of  the 
import  value  of  the  foreign  goods  imported — a  circum- 
stance that  may  find  an  explanation  in  the  fact  that  a  large 


228    THE  THEORY  AND  PRACTICE  OP   TAXATION. 

proportion  of  the  imports  of  Eussia  is  in  the  nature  of  ma- 
chinery or  crude  materials  for  industrial  use  or  elabora- 
tion, and  apart  from  this  the  requirements  of  the  masses  in 
Russia  for  foreign  products  are  comparatively  small. 

In  Egypt  until  quite  recently,  as  has  been  already 
shown,  the  annual  exactions  from  its  peasantry — the  fel- 
lahs— under  the  name  of  taxation  produced  an  extremity 
of  want  which  closely  bordered  on  starvation. 

In  Italy,  which  in  ancient  times  was  regarded,  as  it  is 
in  fact  to-da}',  potentially  the  richest  country  in  Europe, 
and  although  its  present  Government  can  not  fairly  be 
characterized  as  despotic,  its  agriculture  is  burdened  with 
state  exactions  that  are  reported  as  absorbing  from  one 
third  to  one  half  of  the  value  of  its  annual  product.  The 
existing  debt  of  the  country,  created  largely  by  enormous 
military  and  naval  expenditures,  entails  an  annual  in- 
terest charge  of  about  $3.75  per  head  of  its  population.* 

Another  disastrous  interference  with  the  prosperity  of 
the  state  is  the  system  of  taxing  all  business  enterprises, 
after  they  have  been  established  three  years,  at  rates  which 

*  A  national  tax  on  movable  (personal)  property — the  ricchczza 
mohile — is  levied  on  the  poorest  of  the  Italian  people;  and  often 
the  bed  has  to  be  sold  or  the  saucepans  pawned  to  pay  it. 

The  gate  tax,  (hizio  consiumo,  best  known  to  English  ears  as 
octroi,  which  has  been  the  especial  object  of  the  Sicilian  fury, 
is  a  curse  to  the  whole  land.  Nothing  can  pass  the  gates  of  any 
city  or  town  without  paying  this  odious  and  inquisitorial  impost. 
Strings  of  cattle  and  of  carts  wait  outside  from  midnight  to 
morning,  the  poor  beasts  lying  down  in  the  winter  mud  and  sum- 
mer dust.  Half  the  life  of  the  country  people  is  consumed  in  this 
senseless,  cruel  stoppage  and  struggle  at  the  gates:  a  poor  old 
woman  can  not  take  an  egg  her  hen  has  laid,  or  a  bit  of  spinning 
she  has  done,  through  the  gates  without  paying  for  them.  The 
wietched  live  poultry  wait  half  a  day  and  a  whole  night  cooped 
up  in  stifling  crates  or  hung  neck  downward  in  a  bunch  on  a 
nail ;  the  oxen  and  calves  are  kept  without  food  three  or  foTir 
(lays  before  their  passage  through  the  gates,  that  they  may  weigh 
less  when  put  in  the  scales.  By  this  insensate  method  of  taxation 
all  the  food  taken  into  the  cities  and  towns  is  deteriorated.  The 
prating  and  interfering  officers  of  hygiene  do  not  attend  to  this, 
the  greatest  danger  of  all  to  health — that  is,  inflamed  ami  injured 
animal  and  fowl  carcasses  sent  into  the  markets.  The  municipali- 
ties exact  the  last  centime  from  their  prey;  whole  families  are 
ruined  and  disappear  through  the  exactions  of  their  communes, 
who  persist  in  squeezing  what  is  already  drained  dry  as  a  bone. — 
The  Italy  of  To-day,  in  Fortnightly  Review,  February,  ISQ-i,  p.  230. 


EXCESSIVE  TAXATION.  229 

in  some  cases  swamp  the  profits.  And  in  addition  to  such 
disturbing  elements  there  is  undoubtedly  an  all-pervading 
evasion  for  a  consideration  of  all  forms  of  taxation  by  the 
functionaries  whose  business  it  is  to  collect  the  revenue. 
A  very  general  feeling,  therefore,  naturally  prevails  that 
it  is  a  laudable  thing  to  cheat  or  rather  rob  the  Govern- 
ment whenever  opportunity  offers.* 

A  more  recent  instance  of  excessive  taxation  is  to  be 
found  in  the  island  of  Cuba,  where  the  exactions  of  govern- 
ment and  the  known  dishonesty  attending  their  collection 
drove  the  planters  into  revolt.  The  low  price  of  sugar  in 
the  markets  of  the  United  States  made  it  impossible  to 
endure  demands  that  were  easily  met  when  the  profits  of 
sugar  planting  were  large. 

Limitations  in  the  Sphere  of  Taxation. — Atten- 
tion is  next  asked  to  the  fact  that  the  foregoing  proposi- 

*  It  is  enough  to  see  how  railways  are  built  by  the  Government 
of  Italy  to  form  an  idea  of  the  openings  afforded  for  rascality 
and  fraud  in  their  construction.  "  They  are  not  built  by  contract, 
but  on  estimate.  A  building  company  estimates  that  a  certain 
line  will  cost  a  certain  sum  and  receives  the  job,  which  is  always 
indeed  a  '  job.'  The  Government  guarantees  a  certain  income  per 
kilometre,  and  the  constructor  makes  the  road  as  long  as  possible; 
but  when  the  grant  (which  is  made  in  bonds  of  the  state)  for 
the  amount  authorized  is  exhausted,  the  constructor  coolly  tells 
the  ministry  that  the  road  must  stop  there  unless  the  ministry 
makes  another  grant,  which  is  of  course  done,  and  the  invariable 
result  is  that  the  original  estimate  is  nearly,  or  quite,  or  even 
more  than  doubled ;  with  the  consequence  that  none  of  the  roads, 
as  they  are  made,  ever  pay  their  expenses  and  interest  on  their 
cost  of  construction.  More  than  that,  they  are  so  burdened  with 
deadheads  that  it  is  estimated  that  only  forty  per  cent  of  the 
passengers  they  carry  pay  full  fare,  the  remaining  sixty  per  cent 
paying  from  nothing  up  to  seventy-five  per  cent  of  the  fare.  Depu- 
ties and  senators  travel  free  everywhere  in  the  kingdom,  but  as 
the  state  pays  a  block  sum  for  their  privilege,  it  is  not  a  dead 
loss,  though,  as  every  deputy  who  travels  insists  on  having  a 
whole  compartment  for  himself,  the  road  becomes  anything  but 
a  profitable  one.  Every  employee  of  the  great  systems  of  Italian 
railways  has  the  right  to  make  three  journeys  a  year  on  each 
one,  where  he  likes,  and  with  his  family,  and  the  consequence  is 
that  some  of  them  ruin  themselves  taking  long  railway  journeys 
for  which  they  have  not  the  money  to  pay  the  expenses.  And 
they  are  sixty  thousand,  with  as  many  more  pensioned  off  who 
have  the  same  privilege;  and,  as  all  travellers  know,  the  railway 
fare  is  the  smallest  part  of  the  expense  of  a  journey." — Neic  York 
Nation,  June  25,  1896. 


230    THE   THEORY  AND   PRACTICE  OF  TAXATION. 

tions  respecting  the  unlimited  power  of  a  state  to  compel 
contributions,  or  to  tax,  and  which  (as  shown)  have  re- 
ceived the  sanction  of  the  highest  judicial  authorities,  are 
predicated  on  the  assumption  of  complete  sovereignty  on 
the  part  of  the  state.  But  in  a  truly  free  state  such  sover- 
eignty does  not  exist,  and  the  conditions  which  make  it 
.  free  necessarily  preclude  its  existence.  Thus  in  every  such 
\  state  the  two  great  functions  which  constitute  its  sover- 
eignty, namely,  the  right  to  interfere  with  the  liberty  of 
the  citizen  and  Math  his  jiroperty,  have  been  called  into 
existence  and  caii"T)e  rightfully  exercised  for  certain  pur- 
poses only,  which  admit  of  precise  definition.  In  such  a 
state  the  fundamental  and  essential  purpose  of  government 
is  not  to  abridge  the  liberty  of  the  individual  citizen  in 
\y  respect  to  his  person,  or  his  possession  and  use  of  property, 
but  to  increase  it;  and  this  result  (overlooked  in  a  great 
degree  by  economists  and  legislators),  as  has  already  been 
pointed  out,  can  only  be  attained  by  taking  a  part  of  the 
property  of  the  citizen  which  the  existence  of  the  state 
has  enabled  him  to  acquire,  for  the  purpose  of  maintain- 
ing instrumentalities  for  preventing  any  encroachment 
upon  his  rightful  liberty  and  punishing  those  who  attempt 
it.  In  fact,  in  every  free  state  there  are  limitations  on  the 
exercise  of  the  taxing  power,  growing  out  of  the  structure 
of  its  government,  or  because  it  is  free ;  or,  as  Chief-Justice 
^larshall  expressed  it,  "  by  the  implied  reservations  of  in- 
dividual rights  growing  out  of  the  nature  of  a  free  govern- 
ment, and  the  maintenance  of  which  is  essential  to  its 
existence." 

From  the  first  dawn  among  the  Anglo-Saxon  race  of 
the  idea  of  a  constitutional  or  free  government,  the  neces- 
sity of  establishing  an  inhibition  on  the  power  of  govern- 
ment, in  respect  to  the  taking  of  property,  was  recognised ; 
expressed  or  implied  in  the  Magna  Charta,  and  subse- 
quently incorporated  in  the  Federal  Constitution,  through 
its  provisions  respecting  the  equality  of  taxation,  and  that 
private  property  shall  under  no  circumstances  be  taken 
for  public  uses  without  just  compensation. 

The  necessity  of  a  free  state  may,  however,  be  so  great 
— i.  e.,  in  the  prosecution  of  war  for  national  defence,  or 
the  maintenance  of  national  existence — as  to  require  that 
the  entire  resources  of  its  people  should  be  at  the  disposal 


LIMITATIONS  ON   TAXATION.  231 

of  the  Government,  and  compel  a  resort  to  taxation,  even 
to  the  exhaustion  of  everything — property  and  business — 
which  may  be  its  objective ;  and  in  this  sense — i.  e.,  for  the 
preservation  of  individual  liberty  _and_jproperty — and  in 
this  sense  only,  is  "involvexPariy  inherent  power  or  right 
in  taxation  to  destroy.  The  nature  of  the  principle  in- 
volved also  finds  illustration  in  the  circumstance  that  mu- 
nicipal authorities  are  warranted,  in  the  case  of  extensive 
conflagrations,  in  absolutely  destroying  large  amounts  of 
property  in  the  shape  of  buildings  and  their  contents,  in 
order  to  preserve  a  much  larger  amount  of  like  property 
from  destruction.  The  principle  under  discussion  would 
not  accordingly  justify  the  use  of  taxation  in  time  of  peace 
(as  has  been  exercised  by  the  Federal  Government  of  the 
United  States)  for  the  primary  purpose  of  destruction, 
and  not  for  revenue  or  the  preservation  of  property.  Clear- 
ly, if  this  right  of  taxation  is  unlimited,  the  property  of 
every  citizen  would  be  subject  to  the  absolute  disposition 
and  control  of  the  depositary  of  power  in  the  state  for  the 
time  being ;  and  the  recognition  or  non-recognition  of  such 
limitation  marks,  as  before  pointed  out,  more  than  any 
other  one  thing,  the  dividing  line  between  a  free  govern- 
ment and  a  despotism.* 

Probably  the  most  weighty  and  concrete  judicial  opin- 
ion on  this  subject  was  that  given  by  the  Supreme  Court 
of  the  United  States  in  1874  in  the  now  celebrated  case  of 
the  Loan  Association  vs.  Topeka,  20  Wallace,  in  which  the 
late  Justice  Miller,  with  the  substantial  concurrence  of  his 
associates,  indorsed  and  amplified  the  opinion  of  Chief- 


*"The  dictum  of  Chief-Justice  Marshall,  used  by  this  distin- 
guished jurist  in  the  heat  of  arg^ument,  has  been  adopted  by  many 
courts  as  justifying  the  uncontrolled  exercise  of  the  taxing  power. 
A  slight  consideration  will  not  justify  the  dictum.  The  proposition 
that  the  power  to  tax  is  the  power  to  destroy  is  in  opposition  to 
the  fundamental  principles  of  a  free  government.  It  asserts  the 
broad  doctrine  that  the  power  to  tax,  one  of  the  legislative  powers, 
is  unlimited  and  arbitrary.  It  -is  claimed  that  there  is  no  such 
thing  as  arbitrary  power  in  this  country:  that  the  form  of  gov- 
ernment being  republican,  those  who  exercise  the  powers  of  gov- 
ernment, whether  executive,  legislative,  or  judicial,  are  clothed 
with  a  trust  which  is  not  to  be  executed  in  accordance  with  a 
mere  whim,  or  in  an  arbitrary  manner,  but  according  to  the  pur- 
pose of  its  creation." — Burrovghs's  Law  of  Taxation,  1877. 


232    THE  THEORY  AND  PRACTICE  OF  TAXATION. 


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Justice   Marshall  touching  the   reservation  of   individual 
rights  under  a  free  government  as  follows : 

"  It  must  be  conceded,"  he  said,  "  that  there  are  rights 
in  every  free  government  heyond  the  control  of  the  state. 
A  government  which  recognised  no  such  rights,  which  held 
the  lives,  the  liberty,  and  the  property  of  its  citizens  sub- 
ject at  all  times  to  the  absolute  disposition  and  unbounded 
control  of  even  the  most  democratic  depositary  of  power, 
is  after  all  but  a  despotism.  The  theory  of  our  govern- 
ments, State  and  national,  is  opposed  to  the  deposit  of 
imlimited  power  anywhere.  The  executive,  the  legislative, 
and  the  judicial  branches  of  these  governments  are  all  of 
limited  and  defined  powers.  There  are  limitations  of  such 
powers  which  grow  out  of  the  essential  nature  of  all  free 
governments — implied  reservations  of  individual  rights, 
without  which  the  social  compact  could  not  exist,  which 
are  respected  by  all  governments  entitled  to  the  name.  .  .  . 
Of  all  the  powers  conferred  upon  the  Government  that  of 
taxation  is  most  liable  to  abuse.  Given  a  purpose  or  object 
for  which  taxation  may  be  lawfully  used,  and  the  extent/ 
of  its  exercise  is  in  its  very  nature  unlimited.  This  power 
can  as  readily  be  employed  against  one  class  of  individuals 
and  in  favour  of  another,  so  as  to  ruin  the  one  class  and 
give  unlimited  wealth  and  prosperity  to  the  other,  if  there 
are  no  implied  limitations  of  the  uses  for  which  the  power 
may  be  exercised.  To  lay  ivith  one  hand  the  power  of  the 
Government  on  the  property  of  the  citizen,  and  with  the 
other  bestow  it  upon  favoured  individuals  to  aid  private 
enterprises  and  build  up  private  fortunes,  is  none  the  less 
robbery  because  it  is  done  under  the  forms  of  the  law  and 
is  called  taxation.  This  is  not  legislation.  It  is  a  decree 
under  legislative  forms."  And  in  the  same  case  the  same 
court  declared  that  "  the  whole  theory  of  our  governments 
— State  and  national — is  opposed  to  the  deposit  of  un- 
ilimited  power  anywhere." 

No  one  would  probably  question  that  if  an  assemblage 
of  men  reasonably  intelligent — though  not  versed  in  law, 
political  economy,  or  the  teachings  of  social  science — were 
to  come  together  for  the  purpose  of  founding  a  state  de 
novo,  they  would,  while  recognising  at  once,  and  as  it  were 
instinctively,  the  necessity  of  insuring  to  the  government 
of  such  state  a  revenue  adequate  to  its  support,  never  even 


I 


NEW   ENGLAND   PLANTATIONS.  233 

SO  much  as  dream  for  one  moment  of  intrusting  to  it  a 
power  to  take  the  property  of  any  individual  member  of 
such  assemblage,  except  so  far  as  might  be  absolutely  neces- 
sary to  carry  out  and  fulfil  the  purposes  for  which  it  was 
proposed  to  call  the  state  into  existence.  They  would  be 
mentally  blind  if  they  did  not  see  at  once  that  in  intrusting 
to  that  state  a  power  of  unlimited  intereference  with  the 
citizen's  right  to  property,  they  would  create  not  a  free 
government  but  a  despotism. 

The  question  may  be  here  naturally  asked,  Is  there  any 
record  in  history  of  any  assemblage  of  the  founders  of  a 
state  which  discussed  this  subject,  or  took  definite  action  in  U^ 
respect  to  it?  In  answer  it  may  be  said  that  the  two  most 
striking  assemblages  in  history  which  resulted  in  the  forma- 
tion of  states,  and  of  which  any  record  is  preserved,  occurred 
in  connection  with  the  first  settlements  of  New  England, 
and  that  which  resulted  in  the  formation  of  the  Federal 
Constitution  and  the  creation  of  the  nationality  of  the 
United  States.  The  assertion  would  hardly  be  warranted 
that  the  early  plantations  of  New  England  were  formal 
assemblages  gathered  together  for  the  avowed  purpose  of 
forming  a  state.  They  were,  in  fact,  land  companies,  and 
so  far  as  the  law  then  existing  permitted,  were  incorpo- 
rated as  such.  This  act  of  incorporation,  derived  from  a 
corporation  created  by  James  I  of  England  in  1606,  and 
known  as  the  Plymouth  Company,  was  in  the  first  instance 
and  at  once  used  as  the  basis  for  forming  a  political  organi- 
zation by  the  members  of  a  land  company  or  plantation. 
The  necessity  of  a  revenue  to  defray  the  expenses  of  the 
organization  or  incipient  government,  and  in  default  of 
which  there  would  be  no  adequate  protection  to  persons 
and  property,  or,  what  is  the  same  thing,  no  civilization, 
was  at  once  recognised ;  and  probably  the  very  first  act  of 
the  assemblage  of  the  members  of  the  company,  after  the 
selection  of  persons  to  exercise  authority,  was  to  authorize 
the  levy  of  taxes.  These  taxes  were  assessed  and  collected 
in  all  respects  as  they  are  now  in  the  great  States  that  have 
been  the  outcome  of  these  feeble  plantations,  through  what 
may  be  termed  a  process  of  political  evolution.  That  is, 
the  individual  members  of  the  various  communities  or 
their  authorized  representatives  met  in  their  "  General 
Court,"  as  it  was  called,  made  appropriations,  and,  in 
16 


234    THE  THEORY  AND  PRACTICE   OF  TAXATION. 

order  to  pay  them,  levied  what  they  termed  a  "  rate  "  or 
assessment.  This  levy  was  put  into  the  hands  of  a  con- 
stable, who  proceeded  to  enforce  or  collect  the  tax,  either 
in  the  form  of  work  or  commodities  or  money.  There  is 
furthermore  no  indication  in  the  records  of  these  early 
times  of  any  limitation  as  to  the  extent  or  degree  of  assess- 
ment, and  for  the  very  obvious  reason  that  it  never  then 
occurred  to  any  one  that  the  power  of  taxation  could  pos- 
sibly be  used  for  the  destruction  of  private  property  or 
controlling  the  acquisition  and  distribution  of  property — 
the  inventions  of  a  later  period.  The  taxation  of  those 
days  was  necessarily  of  the  crudest  possible  character.  It 
fell  almost  exclusively  on  real  property,  and  what  was 
manifestly  tangible  and  visible,  for  the  very  good  reason 
that  there  was  very  little  of  what  is  now  called  personal 
property  in  existence — that  is,  there  were  no  credit  or  paper 
representatives  of  property,  but  everything  in  the  nature 
of  property  existed  in  the  form  of  land,  slaves,  houses,  ani- 
mals, agricultural  products,  tools,  or  furniture.* 

The  record  of  the  assemblage  (convention)  that  drafted 
the  Coxistitution,  which  by  adoption  by  the  parties  (States) 
thereto  called  the  United  States  into  existence  as  a  nation, 
on  this  subject  of  guarding  and  limiting  the  taxing  power 
on  the  part  of  the  prospective  State  or  Government  which 
they  proposed  to  create,  is  comparatively  full  and  com- 
plete. The  Eevolution,  which  involved  the  renouncing  of 
all  allegiance  of  the  British-American  colonies  to  the 
mother  country,  had  its  origin  in  unjust  taxation;  and  in 
the  Declaration  of  Independence  this  fact  was  made  con- 
spicuous among  the  reasons  that  were  relied  on  by  the 
colonies  to  justify  their  action  in  the  opinion  of  mankind. 
The  attempt  in  1778  to  establish  a  General  Government 
by  the  union  of  all  the  colonies  under  certain  conditions, 
known  as  Articles  of  Confederation,  was  found  after  a 
few  years  of  experience  to  be  wholly  lacking  in  all  the  ele- 
ments of  strength  and  stability,  through  the  lack  of  any 
proper  adjustment  of  the  power  of  taxation;  thereby  en- 
tailing an  almost  complete  inefficiency  of  sovereignty. 
Thus,  there  was  no  power  in  the  Congress  of  the  Confed- 
eration to  raise  money  by  taxation;  but  the  Confederation 

*  See  note  at  the  end  of  this  chapter. 


REQUISITIONS   AND   TAXATION.  235 

depended  for  revenue  upon  requisitions  on  the  several 
States,  with  which  the  States  might  comply  or  not,  as  they 
chose,  and  with  which  they  generally  did  choose  not  to 
comply,  either  promptly  or  fully,  if  at  all.  Some  of  the 
States  levied  duties  on  the  imports  of  merchandise  at  the 
expense  of  their  neighbours;  and  adjacent  ports  in  differ- 
ent States  competed  with  each  other  by  arbitrarily  vary- 
ing the  rates  on  imports,  as  the  Congress  of  the  Confedera- 
tion had  no  authority  to  regulate  commerce,  or  legislate  on 
this  subject  for  the  whole  country.*  The  result  was,  as  Mr. 
Madison  expressed  it,  that  "  the  Federal  authority  had 
ceased  to  be  respected  abroad,  while  at  home  it  had  lost  all 
confidence  and  credit."  It  was  to  remedy  this  one  radical 
infirmity,  more  than  any  other,  that  the  present  Constitu- 
tion was  projected  and  formed.  Other  great  improvements 
in  the  Articles  of  Confederation  were  contemplated  and 
made  in  the  Constitution  when  it  was  formed,  but  the  most 
important  of  all  was  in  the  regulation  of  taxation.  Hamil- 
ton, who  drafted  the  address  to  the  States  inviting  them  to 
send  delegates  to  the  convention  by  which  it  was  formed, 
wrote,  in  The  Federalist,  "The  power  of  taxation  is  the 
most  important  of  the  authorities  proposed  to  be  conferred 
on  the  Union." 

The  necessity  of  conferring  adequate  power  in  this  par- 
ticular upon  the  new  Government  which  it  was  proposed 
to  create  was  admitted  by  all ;  and  yet  there  was  no  power 
which  the  people  were  more  determined  to  guard,  so  that 
it  could  never  be  arbitrarily  or  imjustly  exercised.  And  if 
it  had  not  been  supposed  that  the  provisions  of  the  new 
Constitution  furnished  ample  security  against  any  such 
action,  not  one  of  the  States  would  have  assented  to  its 
ratification. 

The  preamble  of  the  Constitution  asserts,  almost  in  the 
first  instance,  that  the  object  of  its  formation  was  to  "  estab- 

*  The  author  of  The  Federalist  (No.  VII)  refers  to  the  situation 
of  New  York,  as  compared  with  that  of  Connecticut  and  New 
Jersey,  as  affording  an  example  of  the  opportunities  which  some 
States  had  under  the  Confederation  of  rendering  others  tributary 
by  a  monopoly  of  the  taxes  on  imports,  and  said  that  New  York 
would  neither  be  willing  nor  able  to  forego  the  advantage  of  levy- 
ing duties  on  importations,  a  large  part  of  which  must  be  neces- 
sarily paid  by  the  individuals  of  the  other  two  States  in  their 
capacity  of  consumers. 


236    THE  THEORY  AND   PRACTICE   OP  TAXATION. 

lish  justice,"  an  obvious  correlative  of  which  is  that  there 
must  be  equality,  and  no  discrimination  in  taxation  as 
respects  the  same  persons  or  things.  In  its  Article  I 
(second  section)  it  next  provided  that  "  representatives  (in 
Congress)  and  direct  taxes  shall  be  apportioned  among 
the  several  States  according  to  their  respective  numbers, 
excluding  Indians  not  taxed."  The  explanation  of  this 
provision,  which  now  seems  singular,  is  undoubtedly  to 
be  found  in  the  assumption  of  the  framers  of  the  Consti- 
tution that  taxation  in  the  future,  as  it  had  been  in  the 
past,  would  be  mainly  direct  in  its  assessment  and  inci- 
dence; and  that  wealth  was  so  equitably  distributed  in  the 
colonies  (as  it  was  at  that  time),  and,  as  Roger  Sherman, 
of  Connecticut,  expressed  it,  "  the  number  of  people  alone  " 
was  "  the  best  rate  of  measuring  wealth."  And  on  such 
supposition  the  absolute  requirement  of  a  strict  apportion- 
ment of  taxation  according  to  population,  with  an  inherent 
penalty  of  loss  in  congressional  representation  as  the  re- 
sult of  evasion,  was  undoubtedly  regarded  as  a  safeguard 
against  unjust  or  discriminating  taxation. 

Next,  in  section  8,  Article  I,  after  empowering  Con- 
gress "  to  lay  and  collect  taxes,  duties,  imposts,  and  ex- 
cises," to  pay  the  debts  and  provide  for  the  common  defence 
and  general  welfare  of  the  United  States,  was  added  an- 
other provision,  the  like  of  which  does  not  find  an  exact 
counterpart  in  any  political  constitution  or  statute  of 
which  there  is  historical  record — namely,  that  "  all  duties, 
imposts,  and  excises  shall  be  uniform  throughout  the 
United  States."  This  provision  is  one  of  the  first  im- 
portance. It  would  seem  that  there  could  be  no  doubt 
that  the  framers  of  the  Constitution,  having  specially 
in  view  the  fact  that,  under  the  Articles  of  Confedera- 
tion, the  several  States  endeavoured  to  tax  everything  be- 
longing to  every  other  State  that  came  within  their  ter- 
ritorial .jurisdiction,  and  that  there  was  no  authority  on 
the  part  of  the  then  General  Government  to  prevent  such 
action,  did  not  mean  that  the  entity,  called  a  State,  they 
were  about  to  create,  should  have  any  power  of  discriminat- 
ing in  respect  to  the  imposition  of  duties,  imposts,  and 
excises  in  any  degree;  fully  recognising  that  the  moment 
a  State  or  government  thus  discriminates  it  passes  the 
line  of  distinction  between  a  free  government  and  one  that 


RESTEICTIONS   ON  EXERCISE.  237 

is  not  free.  It  is  to  be  further  noted  that  the  words  "  to 
pay  the  debts  and  provide  for  the  common  defence  and 
general  welfare  of  the  United  States  "  should  also  be  re- 
garded in  the  light  of  a  limitation  of  the  purpose  for  which 
the  taxes,  etc.  (authorized  in  the  opening  words  of  the 
section),  may  be  laid  and  collected.  This  view  was  taken 
and  strongly  presented  by  Mr.  Jefferson  in  1791,  shortly 
after  the  adoption  of  the  Constitution.  He  says :  "  To  lay 
taxes  to  provide  for  the  general  welfare  of  the  United 
States,  that  is  to  say,  '  to  lay  taxes  for  the  purpose  of 
providing  for  the  general  welfare.'  For  the  laying  of 
taxes  is  the  poiver,  and  the  general  welfare  the  purpose,  for 
which  the  power  is  to  be  exercised.  They  are  not  to  lay 
taxes  ad  libitum  for  any  purpose  they  please;  but  only  to 
pay  the  debts  or  provide  for  the  welfare  of  the  Union.  In 
like  manner  they  are  not  to  do  anything  they  please  to  pro- 
vide for  the  general  welfare,  but  are  to  lay  taxes  for  that 
purpose.  To  consider  the  latter  phrase,  not  as  describing 
the  purpose  of  the  first,  but  as  giving  a  distinct  and  inde- 
pendent power  to  do  any  act  they  please,  which  might  be 
for  the  good  of  the  union,  would  render  all  the  preceding 
and  subsequent  enumeration  of  power  completely  useless."  * 
Finally,  there  was  added  by  amendment  to  the  Consti- 
tution the  following  provision,  which,  although  implied  in 
the  Magna  Charta,  had  not  been  previously  so  explicitly 
expressed  in  the  Constitution  or  statutes  of  any  other 
State :  "  Nor  shall  private  property  he  taken  for  public  use 
without  just  compensation.'"'  Obviously  this  provision  con- 
stitutes another  limitation  on  the  power  of  Congress  in 
respect  to  the  taking  of  private  property  for  public  use 
by  taxation  or  any  other  method.  In  a  case  involving  the 
bearings  of  this  provision  on  the  taxation  of  a  citizen  of 
New  Jersey,  the  Supreme  Court  of  that  State  analyzed 
and  interpreted  its  meaning  as  follows :  "  A  tax  upon  the 
person  or  property  of  A,  B,  and  C  individually,  whether 
designated  by  name  or  in  any  other  way,  which  is  in  excess 
of  an  equal  apportionment  among  the  persons  or  property 
of  the  class  of  persons  or  kind  of  property  subject  to  this 
taxation  is,  to  the  extent  of  such  excess,  the  taking  of  pri- 

*  From  Jefferson's  opinion  on  the  constitutionality  of  a  national 
bank,  written  in  February,  1791. 


238    THE  THEORY  AND  PRACTICE   OF  TAXATION. 

vate  property  for  a  public  use  without  compensation.  The 
process  is  one  of  confiscation  and  not  of  taxation." — 36 
New  Jersey,  p.  66,  1872. 

It  is  certain,  therefore,  that  in  at  least  one  assemblage 
for  the  purpose  of  creating  a  State — namely,  the  Federal 
Convention — its  members  clearly  recognised  the  incompati- 
bility of  the  possession  and  exercise  of  an  unlimited  power 
of  taxation  by  a  State  and  the  coexistence  of  a  frcQ.govern- 
ment. 

Right  of  Eminent  Domain. — Apart  from  the  right  of 
a  State  to  take  private  property  for  its  use  by  taxation, 
the  State  may  also  legitimately  take  such  property  when 
the  interest  of  the  public  requires  it,  through  what  is  called 
the  law  or  right  of  eminent  domain.  The  distinction  be- 
tween the  power  of  taxation  and  the  power  of  eminent  do- 
main is,  however,  clear  and  well  defined.  An  appropria- 
tion of  property  under  the  right  of  eminent  domain  is  a 
forced  sale  which  its  owner  is  compelled  to  make  for  the 
public  good,  and  for  which  a  pecuniary  consideration  equal 
to  the  estimated  full  value  of  what  is  taken  is  due  from  the 
State.  And  the  exaction  can  not  be  considered  as  a  tax 
"  unless  similar  contributions  are  made  by  the  public  itself, 
or  be  exacted  rather  by  the  public  will,  from  such  con- 
stituent members  of  the  same  community  as  own  the  same 
kind  of  property."  On  the  other  hand,  no  pecuniary  con- 
sideration is  paid  when  money  is  demanded  under  the 
power  of  taxation,  the  benefits  which  the  taxpayer  is 
assumed  to  receive  being  indirect. 

An  Important  Imperfection  or  Omission  in  the 
Federal  Constitution. — Any  discussion  of  the  sphere  of 
taxation  in  the  United  States  would  be  incomplete  that 
failed  to  recognise  a  feature,  in  the  way  of  imperfection  or 
serious  omission,  in  the  Federal  Constitution,  that  hitherto 
has  not  attracted  the  attention  it  deserves.  All  powers  in- 
herent in  the  Constitution  of  the  United  States  were  de- 
rived from  the  States,  and  granted  by  them  in  their  acts 
of  ratification ;  and  "  the  powers  not  delegated  to  the  United 
States  by  the  Constitution,  nor  prohibited  by  it  to  the 
States,  are  reserved  to  the  States  respectively  or  to  the 
people." — Article  X,  Constitutional  Amendments. 

As  has  been  already  pointed  out,  the  convention  that 
framed  the  Constitution  was  especially  solicitous  and  care- 


RIGHT  OP  EMINENT  DOMAIN.  239 

fill  to  guard  and  limit  the  power  of  taxation  on  the  part 
of  the  new  Government  which  it  was  proposed  to  create, 
so  that  it  could  never  be  arbitrarily  or  unjustly  exercised. 
They  anticipated  in  action  the  aphorism  of  John  Stuart 
Mill,  that  "  men  do  not  need  political  rights  in  order  that 
they  may  govern,  but  in  order  that  they  may  not  be  mis- 
governed " ;  for,  as  was  truly  said  by  Guizot,  "  a  consti- 
tution is  only  a  device  for  turning  ordinary  mortals  into 
tolerable  monarchs."  At  the  same  time,  the  convention 
practically  omitted  to  impose  any  limit  or  restriction  on 
the  exercise  of  the  power  of  appropriating  private  property 
on  the  part  of  the  States ;  or,  as  Chancellor  Kent  expressed 
it  in  his  Commentaries  on  the  Constitution,  they  left  "  to 
a  State  the  command  of  all  its  resources  and  the  unimpaired 
power  of  taxing  the  people  and  property  of  the  State." 
On  this  point  the  only  direct  provisions  of  the  Constitu- 
tion are  that  neither  the  Federal  nor  State  governments 
shall  take  private  property  for  public  uses — i.  e.,  by  taxa- 
tion or  right  of  eminent  domain — without  due  compensa- 
tion; and  that  no  State,  without  the  consent  of  Congress, 
shall  lay  any  imposts  or  duties  on  imports  or  exports.  By 
repeated  decisions  of  the  United  States  Supreme  Court, 
another  provision  has  been  substantially  ingrafted  in  the 
Constitution — to  wit,  that  neither  the  Federal  Govern- 
ment nor  the  governments  of  the  States  shall  tax  any  of 
the  instrumentalities  or  exclusive  property  of  the  other. 
The  result  is  that,  except  for  possible  provisions  in  the 
Constitutions  of  the  several  States,  their  respective  legis- 
lative assemblies  may  regulate,  restrict,  or  appropriate  the 
property  of  its  citizens  to  an  unlimited  extent,  and  may 
delegate  this  sovereign  power  to  local  municipal  corpora- 
tions created  by  them.  In  short,  in  virtue  of  the  power^ 
of  levying  unlimited  taxes,  the  power  of  the  Legislatures 
of  the  States  that  make  up  the  Federal  Union  is  as  absolute 
as  that  of  the  Czar  of  Russia  or  the  Sultan  of  Turkey.  Not 
only  may  they  take  in  this  form  all  the  property  in  the 
commonwealth,  but  also  the  property  of  its  citizens  in  other 
countries.  There  is  no  Federal  constitutional  hindrance 
to  their  taxing,  to  any  amount,  real  estate  in  any  other 
State  or  country  owned  by  citizens  resident  within  their 
territorial  jurisdiction.  The  constitutional  provision  that 
private  property  must  be  paid  for  when  taken  for  public 


240    THE  THEORY  AND   PRACTICE   OF  TAXATION. 

■uses  mainly  refers,  in  the  States,  to  the  taking  of  land 
for  highways  and  other  similar  acts  of  necessity  by  emi- 
nent domain.* 

How  little  the  people  of  the  United  States  recognise 
the  fact  that  they  are  living  under  a  dual  form  of  govern- 
ment, with  like  powers  to  some  extent,  especially  in  respect 
to  the  exercise  of  taxation,  finds  an  illustration  in  the  fol- 
lowing incident:  The  question  was  recently  put  to  the 
writer  by  a  gentleman  who  had  filled  with  ability  the  office 
of  Governor  of  one  of  the  leading  States  of  the  Federal 
Union,  how  it  happened  that  the  Federal  Government  could 
impose  on  him  an  income  tax,  and  his  own  State,  at  the 
same  time,  assess  him  with  not  only  another  like  income 
tax,  but  also  with  a  tax  on  the  property  from  which  his 
income  was  derived?  The  idea  of  a  dual  government  and 
its  inconveniences,  and  that  the  Congress  of  the  Federal 
Government  had  not  cared  to  remedy  the  latter,  had  not 
occurred  to  the  interrogator. 

Had  the  power  of  the  States  to  take  money  by  taxation 
from  their  people  been  limited  at  the  time  of  the  formation 
of  the  Federal  Union  by  constitutional  provisions,  the  in- 

*  "  There  is  nothing  in  the  Constitution  of  the  State  of  New 
York  which  requires  that  taxation  shall  be  general,  so  as  to  era- 
brace  all  taxable  persons  in  the  State,  or  within  any  district  of 
the  State;  or  that  it  shall  be  equal,  or  that  it  shall  be  in  propor- 
tion to  the  value  of  the  property  of  the  person  taxed,  or  that  it 
shall  not  be  apportioned  according  to  the  benefit  which  each  tax- 
payer is  supposed  to  receive  from  the  object  on  which  the  tax  is 
expended." — People  ex  rel.  (irifftn  vs.  Mai/cr,  4  N.  T.,  419,  1851. 

"  There  is  no  constitutional  limitation  upon  the  legislative 
power  to  tax  the  persons  and  property  of  individuals  within  the 
State.  The  power  may  be  exercised  to  pay  debts  contracted  be- 
fore the  property-holder  comes  within  the  jurisdiction." — Pam- 
pcUu  vs.  TiUage  of  Ostrerjo,  Ct.  of  A  pp.,  1863,  N.  T. 

"  Unless  restrained  by  provisions  of  the  Federal  Constitution, 
the  power  of  the  State  as  to  the  mode,  form,  and  extent  of  taxa- 
tion is  unlimited  when  the  subjects  to  which  it  applies  are  within 
her  jurisdiction." — Kirtland  vs.  Hotchkiss,  Connecticut. 

"  The  Legislature  can  constitutionally  impose  a  tax  on  all 
watches,  pianos,  carriages,  dogs,  spirituous  liquors,  or  other  chat- 
tels without  reference  to  their  value.  It  can  impose  an  arbitrary 
tax  upon  any  avocation  or  business  without  estimating  its  vol- 
ume or  value." — People  vs.  Equitable  Trust  Co.,  of  Keu-  London, 
Conn.,  1881 ;  System  of  Taxation  in  the  State  of  New  York,  pre- 
pared h\i  Bon.  Julien  T.  Davies,  at  request  of  a  committee  of  the 
Legislature,  1888. 


EXTRAVAGANT   EXPENDITURES.  241 

jury  and  disgrace  of  State  repudiation  might  have  been 
wholly  avoided,  and  much  wasteful  extravagance  checked.     •/ 

"  Within  an  hour's  ride  from  the  city  of  New  York 
several  towns  can  be  reached  that  were  bankrupted  by 
undertaking  '  public  works  upon  a  magnificent  scale.'  The 
number  of  Western  communities  that  have  been  ruined 
from  the  same  cause  is  countless.  A  very  great  number 
of  people  in  the  Eastern  States,  both  poor  and  of  the  mid- 
dle class,  have  been  impoverished  by  the  sudden  check  to 
the  prosperity  of  these  communities.  Nor  is  any  severer 
tax  imposed  upon  any  class  than  that  which  is  paid  by 
those  who  have  only  their  wages  to  live  upon,  when  they 
are  deprived  of  these  by  the  collapse  of  municipal  credit 
and  the  consequent  sudden  stop  to  extravagant  expendi- 
ture. The  average  cost  of  the  pensions  paid  by  the  United 
States  is  ten  to  twelve  dollars  a  year  to  every  family  in  the 
country,  and  in  many  cases  the  pension  charge  alone  is  equal 
to  half  a  month's  or  even  to  a  month's  wages.  Not  a  few  of 
the  governments  of  the  earth  are  now  insolvent  because  of 
excessive  expenditures  upon  public  works.  In  South  Amer- 
ica and  Australia,  extravagant  undertakings  of  this  kind 
have  caused  widespread  ruin  and  distress;  and  the  poor  of 
several  other  nations  are  likely  to  find  out  eventually  that  , 
the  alleviation  of  temporary  distress  by  governmental  ex-  ( 
penditure  of  capital  is  like  keeping  off  the  cold  by  burning  / 
down  the  house."  *  / 

That  the  State  governments  should  have  bestowed  the 
unlimited  and  imperial  power  of  taxation  upon  city  govern-* 
ments,  and  given  up  to  their  use  and  control  the  entire  f^  ^  r 
property  of  the  citizens,  is  an  extraordinary  abuse  of  trust  ^'\^ 
and  a  renunciation  of  the  true  functions  of  government.  ^ 

As  a  result  of  this  policy  these  delegated  governments  have, 
within  a  comparatively  recent  period,  absorbed  for  alleged 
public  uses  a  large  proportion  of  the  property  of  the  citi- 
zens, to  the  estimated  extent  in  some  instances  of  more  than  \J^ 
one  third — that  is,  the  usufruct   (right  of  using  and  en-   \  '^i 
joying) — and  the  American  citizen  has  to-day  no  consti-  \L^\k 
tutional  or  legal  remedy.     "  No  such  plunder  was   ever  /        ^Xl 
sanctioned  or  practised  before  in  the  history  of  civilized 
governments.     That  it  has  been  possible  in   the   United 

*  D.  MacG.  Means,  in  The  Forum,  1894. 


242    THE  THEORY  AND   PRACTICE  OF  TAXATION. 

States  argues  the  gravest  defect  in  its  political  system. 
That  a  check  is  needed  of  the  most  absolute  kind  is  recog- 
nised by  all  thoughtful  men.  Such  check  can  only  be  had 
from  the  Legislatures  of  the  States,  who  can  not  be  too 
prompt  in  correcting  the  evils  resulting  from  this  extraor- 
dinary surrender  of  their  supreme  jurisdiction  on  the  vital 
subject  of  taxation.  The  Legislature  holds  the  public 
purse,  and  is  false  to  its  trust  as  its  custodian  when  it 
authorizes  corporations  to  put  their  hands,  unwatched,  into 
this  purse  and  take  from  it,  uncounted,  all  that  their  ex- 
travagance and  cupidity  desire.  It  is  no  apology  that  city 
governments  are  chosen  by  popular  vote.  It  is  the  essence 
of  our  government  that  personal  rights  are,  by  our  Con- 
stitution, wholly  independent  of  the  voting  power,  and  cer- 
tainly property  should  be  equally  so  protected." 

The  question  here  naturally  arises,  How  happened  it 
that  the  framers  of  the  Constitution  and  founders  of  our 
Government,  while  carefully  defining  and  limiting  the 
powers  of  the  Federal  Government  in  respect  to  the  taking 
of  property  through  taxation,  omitted  to  make  any  like 
provisions  applicable  to  the  States?  An  answer  is,  that 
it  was  probably  an  oversight,  favoured  by  the  circumstance 
that  there  was  no  English  precedent  for  such  provisions. 
At  the  time  of  the  Eevolution  it  was,  and  ever  since  has 
been,  the  occupation  and  duty  of  the  British  House  of  Com- 
mons to  limit  and,  if  considered  expedient,  resist  the  pecun- 
iary demands  of  the  crown,  and  latterly  of  its  ministers ; 
and  this  occupation  and  duty  were  never  delegated  with- 
out restriction  to  any  subordinate  legislative  assemblage. 
It  might  have  been,  and  probably  was,  assumed  by  the 
framers  of  the  Federal  Constitution,  that  the  several  States 
in  making  their  Constitutions  would  have  followed  the 
precedents  respecting  the  rights  and  duties  of  taxation 
that  they  (the  framers)  had  established ;  and,  if  the  several 
Legislatures  of  the  States  had  been  confined  to  these  rights 
and  duties,  and  had  never  delegated  them  without  restric- 
tion to  the  complicated,  ill-organized,  and  irresponsible 
municipal  corporations,  which  in  latter  days  have  grown  to 
such  portentous  size,  little  of  danger  would  have  followed.* 

*  In  his  treatment  of  this  important  topic,  the  author  is  mainly 
indebted  to  Mr.  Manley  Howe,  of  Boston,  who,  in  a  newspaper 
article   published   some   years   ago,   seems   to   have   been   the   first 


LIMITATION  ON  TAXATION.  243 

It  should,  however,  be  here  noted  that  remedial  action 
in  this  matter  has  recently  been  taken  by  some  of  the 
States,  by  forbidding  their  counties,  cities,  towns,  or  vil- 
lages from  incurring  an  indebtedness  in  excess  of  a  per- ' 
centage,  varying  with  their  population,  of  the  valuation  of-^ 
the  real  estate  subject  to  taxation.  Constitutional  restric- 
tions on  the  borrowing  power  of  the  State  itself,  and  of 
the  municipalities  within  its  territorial  jurisdiction,  have 
also  in  some  of  the  States  been  adopted. 

From  the  above  discussion  the  following  conclusions 
would  seem  to  be  fully  warranted : 

The  limitation  on  the  exercise  of  the  power  of  taxation 
under  a  free  government  necessarily  grows  out  of  the  source 
and  sole  justification  of  the  power — namely,  its  necessity; 
and  the  righteousness  of  any  specific  interference  by  the 
state  with  individual  rights  in  respect  to  property  (as  well 
as  in  respect  to  personal  liberty)  may  be  tested  by  the 
question,  Is  it  necessary?  Not,  Is  it  convenient?  Not,  Is 
it  suitable?  If  the  necessity  exists,  then  the  power  may 
be  justifiably  exercised  to  a  corresponding  extent.  But, 
on  the  other  hand,  if  the  interference  transcends  that  which 
is  absolutely  essential  for  fulfilling  the  rightful  purposes 
for  which  the  state  exists,  then  it  loses  its  sole  justification 
of  necessity  and  becomes  tyranny,  the  definition  of  which 
is  "  despotic  use  of  power."  Further,  "  if  the  state,  even 
to  promote  its  necessary  and  legitimate  objects,  takes  the 
amount  of  property  to  which  it  is  entitled  in  such  a  man- 
ner as  requires  a  citizen  to  pay  more  than  his  just  share 
of  the  requisite  amount — whether  it  be  great  or  small — 
it  takes  that  to  which  it  has  no  right ;  it  does  what,  if  done 
by  a  citizen  in  defiance  of  law,  is  called  robbery;  if  under 
colour  of  law,  is  called  fraud ;  but  which  in  a  government 
which  makes  law  is  simply  confiscation  and  tyranny."  And 
yet,  very  strangely,  this  tyranny  has  come  to  be  regarded 
and  defended  by  not  a  few  intelligent  persons  who  claim 
to  understand  the  theory  and  nature  of  a  free  and  just 
government  as  an  act  of  wisdom  and  statesmanship,  and  in 
the  highest  degree  beneficent  to  the  citizen  whose  property 
is  confiscated. 


person  to  intelligently  present  the  facts  in  the  ease  and  their  con- 
sequences to  the  general  public. 


244    THE  THEORY   AND   PRACTICE   OF  TAXATION. 

It  will  be  interesting  to  print  the  provisions  for  "  Pub- 
lick  Charges  "  contained  in  the  "  Book  of  the  General  Lawes 
and  Libertyes  concerning  the  Inhabitants  of  Massachusets, 
1660,"  one  of  the  earliest  compilations  of  the  laws  of  an 
American  colony : 

"2.  The  Court  considering  the  necessity  of  an  equal 
contribution  to  all  common  charges  in  Townes,  Doth  Order, 
That  every  Inhabitant,  shall  contribute  to  all  charges,  both 
in  Church  and  Commonwealth  whereof  he  doth  or  may 
receive  benefit :  And  every  such  Inhabitant,  who  shall  not 
contribute,  proportionably  to  his  ability,  to  all  common 
charges,  both  Civil  and  Ecclesiastical,  s^all  be  compelled 
thereunto,  by  Assessment  and  distress,  to  be  levyed  by  the 
Constable,  or  other  Officer  of  the  Town,  and  tlie  lands  and 
estates  of  all  men  (wherein  they  dwell)  shall  l)e  Rated  for 
all  Town  charges,  both  civil  and  Ecclesiastical  (as  afore- 
said) where  the  lands  and  estates  shall  lye:  and  their  per- 
sons where  they  dwel. 

"  3.  For  a  more  Equal  and  ready  ivay  of  raising  means 
for  defraying  the  puhlick  charges,  and  for  preventing  such 
inconveniences,  as  have  fallen  out  upon  former  assessments. 
It  is  Ordered  and  enacted  by  the  Authority  of  this  Court. 
That  the  Treasurer  for  the  time  being,  shall  from  3'eare  to 
yeare  in  the  fift  month,  without  expecting  any  other  order, 
send  his  warrants  to  the  Constable,  and  Selectmen  of  every 
Town  within  this  Jurisdiction,  requiring  the  Constable  to 
call  together  the  Inhabitants  of  the  Towne,  who  being  so 
assembled,  shall  chose  some  one  of  their  freemen,  to  be  a 
Commissioner  for  the  Towne,  who  together  with  the  Select- 
men, for  their  prudential  affairs,  shall  some  time  in  the 
sixt  month,  then  next  ensuing,  make  a  List  of  all  the  male 
persons  in  the  same  Towne,  from  sixteen  yeares  old  and 
upwards,  and  a  true  estimation  of  all  personal  and  real 
estates,  being  or  reported  to  be  the  estate  of  all  and  every 
the  persons  in  the  same  Towti,  or  otherwise  under  their 
custody  or  managing  according  to  just  valuation,  and  to 
what  persons  the  same  doe  belong,  whether  in  their  owne 
Town  or  elsewhere,  so  neer  as  they  can  by  all  lawfull 
means,  which  they  may  use,  viz.,  of  houses,  lands  of  all  sorts 
as  wel  broken  up  as  other  (except  such  as  doth  or  shall 
lye  common  for  free  feed  of  cattle,  to  the  use  of  the  in- 
habitants in  general,  whether  belonging  to  Townes  or  par- 


TAXATION  IN  EARLY   MASSACHUSETTS.  245 

ticular  persons,  but  not  to  be  kept  or  bearded  upon  it,  to 
the  damage  of  the  proprietours,)  mils,  ships  and  all  small 
vessells,  merchantable  goods,  cranes,  wharfs,  and  all  sorts 
of  cattle;  and  all  other  known  estate  whatsoever,  either 
at  sea  or  on  shore,  all  which  persons  and  estates  are  by 
the  said  Commissioners  and  Selectmen  to  be  assessed,  and 
rated  as  here  followeth;  viz.  every  person  aforesayd  (except 
Magistrates  and  Elders  of  Churches)  one  shilling  and  eight 
pece  by  the  head,  and  all  estates,  both  real  and  personal, 
at  one  penny  for  every  twenty  shillings,  according  to  the 
rates  of  cattle,  hereafter  mentioned.  The  estates  of  all 
marchants,  shopkeepers  and  factors,  shall  be  assessed  by 
the  Eule  of  common  estimation,  according  to  the  will  and 
doom  of  the  assessours,  having  regard  to  their  stock  and 
estate,  be  it  preferred  to  view  or  not,  in  whose  hands  soever 
it  be,  and  if  any  such  merchants  find  themselves  over  valued, 
if  they  can  make  it  appear  to  the  Assessours,  they  are  to 
be  eased  by  them,  if  not  by  the  next  County  Court ;  And 
houses  and  land  of  all  sorts  (except  as  aforesayd)  shall  be 
rated  at  an  equal  and  indifferent  value,  according  to  their 
worth  in  the  Towns  and  places,  where  they  ly.  Also  every 
Bull  and  Cow  of  four  years  old  and  upward  at  three  pounds, 
Heifers  and  steers  between  three  and  four  years  old  at  fifty 
shillings,  and  between  two  and  three  years  old  at  forty 
shilling,  and  between  one  and  two,  at  twenty  shillings,  and 
every  ox  of  four  years  old  and  upward  at  five  pound,  every 
horse  and  mare  of  three  years  old  and  upwards  ten  pounds, 
between  two  and  three  at  seven  pounds-^  of  one  year  old  and 
upwards,  at  five  pounds,  every  ewe  sheep  above  one  year 
old,  at  five  and  twenty  shillings,  every  goat  above  a  year 
old,  at  eight  shillings,  every  weather  sheep  above  one  year 
old,  at  ten  shillings,  every  swine  above  one  year  old,  at 
twenty  shillings,  Every  Asse  above  one  year  old,  at  forty 
shillings.  And  all  cattle  of  all  sorts,  under  a  year  old, 
are  hereby  exempted,  as  also  all  hay  and  corn  in  the  hus- 
bandmans  hand  because  all  meadow,  arable  ground,  and 
cattle  are  rateable  as  aforesaid.  And  for  all  such  persons 
as  by  the  advantage  of  their  arts  and  trades,  are  more  en- 
abled to  help  bear  the  publick  charge,  then  common  labour- 
ers and  workmen,  as  Butchers,  Bakers,  Brewers,  victuallers, 
Smiths,  Carpenters,  Taylers,  Shoemakers,  joyners,  Barbers, 
Millers  and  Masons,  with  all  other  manual  Persons  and 


246    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

Artists,  such  are  to  be  rated  for  returnes  and  gaines,  pro- 
portionable unto  other  men,  for  the  produce  of  their  estates. 
Provided  that  in  the  rate  by  the  poll,  such  persons  as  are 
disabled  by  sickness,  lameness  or  other  infirmitie,  shall  be 
exempted.  And  for  such  servants  and  children  as  take  not 
wages,  their  parents  and  masters  shall  pay  for  them,  but 
such  as  take  wages  shall  pay  for  themselves.  And  it  is 
farther  Ordered,  that  the  Commissioners  for  the  several 
Towns  in  every  shire,  shall  yearly  upon  the  first  fourth  of 
the  week,  in  the  seventh  month,  assemble  in  at  their  shire 
Town :  and  bring  with  them  f airely  written  the  just  number 
of  males,  listed  as  aforesaid,  and  the  assessments  of  estates 
made  in  their  several  Towns,  according  to  the  rules  and  di- 
rections in  this  present  Order  expressed,  and  the  said  Com- 
missioners being  so  assembled,  shall  duely  and  carefully  ex- 
amine all  the  said  lists  and  assessments  of  the  several  Towns 
in  that  shire,  and  shall  correct  and  perfect  the  same,  accord- 
ing to  the  true  intent  of  this  Order,  as  they  or  the  major 
part  of  them  shall  determine,  and  the  same  so  perfected, 
they  shall  speedily  transmit  to  the  Treasurer  under  their 
hands,  or  the  hands  of  the  major  part  of  them ;  and  there- 
upon the  Treasurer  shall  give  warrants  to  the  Constables 
to  collect  and  leavy  the  same;  so  as  the  whole  assessment, 
both  for  persons  and  estates,  may  be  payd  in,  unto  the 
Treasurer,  before  the  twentieth  day  of  the  ninth  month 
yearly;  and  every  one  shall  pay  their  rate  to  the  Con- 
stable, in  the  same  Town  where  it  shall  be  assessed,  (nor 
shall  any  land  or  estate  be  rated  in  any  other  Town;  but 
where  the  same  shall  lye,  or  was  imployed  to  the  owners, 
reputed  owners,  or  other  proprietors  use  or  behoof,  if  it  be 
within  this  jurisdiction)  and  if  the  Treasurer  cannot  dis- 
pose of  it  there,  the  Constable  shall  send  it  to  such  place  in 
Boston,  or  elsewhere,  as  the  Treasurer  shall  appoint  at  the 
charge  of  the  Country,  to  be  allowed  the  Constable,  upon 
his  account  with  the  Treasurer,  and  for  all  peculiars,  viz.: 
Such  places  as  are  not  yet  layd  within  the  bounds  of  any 
Town,  the  same  lands,  with  the  persons  and  estates  there- 
upon, shall  be  assessed  by  the  rates  of  the  Town  next  unto 
it,  the  measure  or  estimation  shall  be  by  the  distance  of  the 
meeting  houses." 

It  was  also  ordered  that  no  estate  of  land  in  England 
should  be  rated  in  any  public  assessment. 


CHAPTER  XI. 

LIMITATION   ON   THE   INSTRUMENTALITIES   OF   TAXATION. 

Attention  is  next  asked  to  the  instrumentality  by 
which  taxation  subserves  the  necessities  of  the  state  and 
enables  it  to  effect  the  purposes  for  which  it  was  instituted. 
The  designation  of  this  instrumentality  is  "  revenue,"  as 
is  indicated  in  the  phrase  "tariff  (or  taxation)  for  reve- 
nue." But  the  term  "  revenue  "  is  abstract  and  most  in- 
definite, and  as  popularly  used  conveys  little  meaning 
other  than  a  receipt  of  something  of  value.  In  rude  or 
incipient  forms  of  government,  where  tribute  or  taxes  were 
payable  in  cattle,  skins,  cocoanuts,  salt,  grain,  and  the 
like,  the  term  might  be  fairly  interpreted  as  an  income 
of  property  in  general.  But  in  a  highly  civilized  state  such 
a  meaning  is  inadmissible.  The  government  of  such  a  state 
obviously  could  not  defray  its  varied  expenses  by  payments 
with  various  articles  of  property,  even  though  their  value 
may  be  unquestioned — as,  for  example,  its  executive  with 
fish,  fresh  or  salt ;  its  legislators  with  distilled  or  fermented 
liquors;  its  judges  with  boots  and  shoes;  its  soldiers  and 
sailors  with  cotton  or  corn ;  and  its  clerks  with  agricultural 
implements — even  though  the  producers  of  all  these  forms 
of  wealth  or  property  may  be  most  willing  to  give  them 
in  discharge  of  their  tax  obligations.*  In  such  a  state 
revenue  has  and  can  have,  therefore,  but  one  meaning — 

*  In  ancient  times  cattle  were  regarded  amonof  nations  of  a 
considerable  degree  of  civilization  as  standards  of  value,  and  obliga- 
tions to  government  in  the  nature  of  taxes  were  payable  therein. 
As  recent,  moreover,  as  1758  taxes  in  Virginia  and  Maryland  were 
payable  in  tobacco;  and  in  Massachusetts,  Indian  corn,  musket 
balls,  dried  peas,  cattle,  and  beaver  skins  were  made  legal  tender 
for  the  payment  of  taxes  until  the  early  years  of  the  eighteenth 
century.  Ultimately,  and  in  all  eases  as  civilization  advanced,  such 
media  for  the  payment  of  taxes,  or  the  discharge  of  other  forms 
of  indebtedness,  have  been  found  to  result  in  terrible  currency 
confusion  and  to  be  wholly  impracticable, 

247 


248    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

namely,  money ;  because  money  is  the  indispensable  and 
practically  the  only  means  of  defraying  the  expenses  of 
the  state  and  efficiently  administering  its  government;  and 
taxation  is  the  process  by  which  the  state  obtains  money 
from  its  citizens,  who  in  turn  obtain  it  (as  before  pointed 
out — see  Chapter  IX)  in  exchange  for  some  product 
of  their  labour  or  for  some  direct  personal  service.  In 
short,  money  is  an  expedient  that  finds  its  sole  justifica- 
tion in  its  adaptation  to  a  special  purpose. 

At  the  same  time  it  is  important  to  bear  in  mind  that 
the  raising  or  procurement  of  money  with  the  view  or  pur- 
pose of  accumulating  wealth  is  not  a  legitimate  function 
or  object  of  civil  government. 

This  point,  which,  stated  and  regarded  as  an  abstract 
proposition,  may  seem  to  the  reader  as  a  matter  of  interest 
but  of  little  practical  importance,  finds  a  very  interesting 
and  most  instructive  exemplification  in  the  recent  attempt 
to  govern  South  Africa  by  means  of  a  chartered  company 
— "  The  South  African  Company."  The  attempt  failed 
by  the  confusing  on  the  part  of  the  company  of  two  things 
which  are  absolutely  irreconcilable  and  ought  never  to  be 
associated — namely,  the  prerogative  of  governing  men  on 
the  one  hand  and  the  desire  of  making  money  on  the  other. 
This  the  company  in  question  attempted  to  do  by  taxing 
the  inhabitants  of  the  territory  embraced  in  its  charter  for 
the  purpose  of  making  dividends  for  shareholders,  who  as 
a  rule  did  not  live  in  the  country,  but  mainly  in  England. 
The  result  has  been  a  thoroughly  vicious  and  intolerable 
form  of  government,  one  which  "  has  operated  to  deaden 
the  sense  of  responsibility  among  the  rulers,  who  are  here 
to-day  but  are  gone  to-morrow,  and  answerable  to  nobody 
but  the  company." 

Now,  if  these  premises  are  correct — and  it  is  difficult 
to  see  how  they  can  be  disproved — it  would  seem  to  follow 
that  to  seek  to  make  taxation,  which  is  a  fit  contrivance 
only  for  raising  revenue,  an  instrument  for  effecting  some 
ulterior  purpose,  be  it  never  so  just  and  legitimate,  to  seek 
to  use  it  for  the  attainment  of  any  other  advantage  than 
the  obvious  one  of  raising  money,  is  to  lose  sight  of  a 
fundamental  principle  of  every  free  government  and  to 
forbid  all  expectation  of  recognising  any  other  basis  for 
the  exercise  of  this  great  sovereign  power  of  the  state  than 


TAXATION   FOR  REVENUE.  249 

expediency,  which  in  turn  will  depend  upon  the  actions, 
passions,  and  prejudices  of  legislators,  who  may  not  be  the 
same  in  any  two  successive  legislative  assemblies. 

Such  a  perversion  of  principle,  furthermore,  reaches  its 
climax  of  absurdity  in  practice  when  its  immediate  bene- 
ficiaries claim  to  be  the  only  proper  persons  by  whom  the 
incidence  and  amount  of  taxation  can  be  intelligently  de- 
termined— a  claim  that  is  practically  equivalent  to  the 
assumption  that  privilege  should  take  precedence  of  rights 
in  the  theory  of  government.*  And  yet  there  have  been 
but  very  few  of  the  revenue  enactments  in  recent  years  of 
the  Federal  Government  of  the  United  States  that  have 
not  only  indorsed  the  rightfulness  and  desirability  of  such 
claims,  but  have  made  them  the  basis  of  most  important 
legislation. 

As  this  subject  has  hitherto  received  but  little  attention 
from  legislators  and  the  legal  profession  in  the  United 
States,  the  following  citations  from  recognised  American 
authorities  are  most  pertinent  in  this  connection : 

"  A  burden  laid  not  for  the  purpose  of  producing  reve- 
nue, but  in  order  to  accomplish  some  ulterior  object  which 
the  General  Government  lacks  the  power  otherwise  to  ac- 
complish, comes  under  no  definition  of  the  word  "  tax  " 
which  is  recognised  in  public  law.  It  demands  no  con- 
tributions for  the  service  of  the  state;  it  adds  and  is  ex- 
pected to  add  nothing  to  the  public  revenue.  It  annihi- 
lates that  upon  which  it  is  levied,  and  it  differs  from 
confiscation  only  in  this :  that  confiscation  seizes  something 
of  value  and  appropriates  it  to  the  needs  of  the  Govern- 
ment, thus  making  it  useful,  while  this  seizes  it  for  the 
purpose  of  destruction." — Cooley,  Law  of  Taxation,  p.  75. 

*  In  popular  discussions  of  tariff  revisions  in  the  United  States 
such  a  claim  has  actually  been  advanced  by  the  representatives 
of  interests  in  whose  behalf  certain  imposts  had  been  specially 
enacted,  and  which  were  not  for  purposes  of  collecting  but  rather 
for  the  prevention  of  revenue. 

"It  is  not  claimed  that  this  statute  [McKinley  Tariff  Act], 
any  more  than  any  other  human  ordinance,  was  perfect  in  its  de- 
tails, nor  that  all  its  rates  of  assessment  of  duties  should  have 
been  maintained,  but  the  modifications  suggested  by  time  and  ex- 
perience should  have  been  left  to  the  friends  of  the  measure."' — ■ 
Letter  of  the  Hon.  L.  P.  Moi'ton,  accrpthi<7  nomination  for  the 
office  of  Governor  of  New  York,  October  9,  iS94- 
17 


250    THE   THEORY   AND   PRACTICE   OF   TAXATION. 

/      "  One   grievous   invasion  of  property — and   of   course 
/ultimately  of  labour,  from  whose  accumulations  all  prop- 
j    I  erty  grows — is  by  Government  itself,  in  the  shape  of  taxa- 
\r  '  tion  for  objects  not  necessary  for  the  common  defence  and 
general  welfare.     Men  have  a  right  not  only  to  be  well 
s^  governed,  but  to  be  cheaply  governed — as  cheaply  as  is 

consistent  with  the  due  nuiintenanee  of  that  security  for 
which  society  was  formed  and  government  instituted. 
This,  the  sole  legitimate  end  and  object  of  law,  is  never  to 
be  lost  sight  of — security  to  men  in  the  free  enjoyment 
and  development  of  their  capacities  for  happiness — se- 
curity :  nothing  less,  but  nothing  more."  —  Sharswood, 
\  Legal  Ethics. 
"  To  the  extent  that  the  mass  of  our  citizens  are  in- 
ordinately burdened  beyond  any  useful  public  purpose 
and  for  the  benefit  of  a  favoured  few,  the  Government, 
under  pretext  of  an  exercise  of  its  taxing  power,  enters 
gratuitously  into  partnership  with  these  favourites,  to 
their  advantage  and  to  the  misery  of  a  vast  majority  of 
our  people." — Message  of  Grover  Cleveland,  President  of 
the  United  States,  December,  1888. 

Taxation  for  Revenue  only.  What  does  it  mean  ? 
— It  is  essential  to  the  completeness  of  this  discussion  to 
call  attention  at  this  point  to  the  circumstance  that  a  full 
recognition  and  rigid  adherence  in  practice  by  a  Govern- 
ment to  the  principles  of  taxation  above  shown  to  be  funda- 
mental, will  not  interfere  with  or  impair  the  efficiency  of 
its  administration.  The  raising  of  revenue  (money)  by 
taxation  is  one  thing;  the  determination  of  how  the  reve- 
nue collected  shall  be  used  or  expended  is  quite  another 
thing;  and  the  danger  line  to  the  liberties  of  the  people  is 
crossed  when  these  two  functions  are  confounded.  The 
exercise  of  the  first,  as  already  pointed  out,  is  subject  to 
limitations  growing  out  of  the  conditions  essential  to  the 
existence  of  a  free  Government.  The  determination  of 
the  second  rests  primarily  in  the  legislative  department  of 
such  Government,  and  is  subject  to  no  legal  limitations 
in  the  United  States  other  than  what  flows  from  the  oft- 
repeated  dicta  and  decisions  of  its  highest  judicial  authori- 
ties, that  money  taken  out  of  the  pockets  of  the  people 
by  taxation  can  not  be  used  (expended)  for  any  other  than 
a  public  purpose;  but  what  constitutes  a  public  purpose 


REVENUE  AND  EXPENDITURE.        251 

is  so  indefinite  that  one  eminent  jurist,  especially  versed 
in  the  subject,  has  declared  that  "  there  is  no  such  thing 
as  drawing  a  clear  line  of  distinction  between  purposes 
of  a  public  and  those  of  a  private  nature."  * 

If  a  state,  therefore,  in  the  plenitude  of  the  wisdom  of 
its  legislators,  desires  to  interfere  with  the  operation  of  the 
laws  of  trade,  domestic  or  foreign,  control  the  preferences 
of  its  citizens  in  respect  to  production  or  consumption,  re- 
press one  form  of  industry  and  stimulate  another,  and  dis- 
courage even  to  prohibition  the  indulgence  of  such  tastes 
and  passions  as  it  may  judge  to  be  detrimental  to  itself 
or  the  individual,  it  may  legitimately  exercise  functions 
entirely  different  from  that  exercised  in  raising  revenue 
and  governed  by  entirely  different  principles.  The  right 
to  regulate  trade  and  commerce  and  the  power  of  police 
are  entirely  independent  of  the  right  to  raise  revenue. 

If  the  state,  in  providing  itself  with  what  it  regards 
as  necessary  revenue,  levies  its  taxes  in  such  a  manner  that 
no  citizen  is  required  to  pay  more  or  allowed  to  pay  less 
than  his  just  proportion,  then  there  is  no  tyranny  in  taxa- 
tion, even  if  the  methods  employed,  without  any  such  in- 
tent, may  incidentally  promote  private  interests  and  sump- 
tuary purposes.  But  if,  on  the  other  hand,  a  just  and 
equitable  method  of  taxation  will  not  promote  these  pur- 
poses, and,  as  is  usually  the  case,  the  state  resorts  to  meth- 
ods that  are  not  just,  not  equitable,  and  imposes  upon  some 
citizens  an  undue  share  of  the  general  public  burden,  then 
to  that  extent  taxation  becomes  tyrannical,  and  can  not 
be  justified  except  upon  the  assumption  that  there  is  no 
limitation  on  the  right  of  a  state  to  interfere  with  individ- 
ual rights  to  property;  which  is  the  same  thing  as  assert- 
ing that  the  state  in  question  is  not  "  free,"  but  is  a  "  des- 
potism." In  short,  the  proposition  would  seem  to  be  clear 
that  the  state  can  not,  without  violating  that  simple  prin- 
ciple of  justice  which  prescribes  equality  in  taxation,  use 
its  taxing  power  for  effecting  any  other  purpose  whatever 
except  to  raise  money,  f 


*  Cooley,  Law  of  Taxation,  p.  70. 

t  A  legal  writer  of  eminence  ( Jvistice  Cooley)  has  recently  con- 
tended that  this  is  not  a  correct  view,  for  the  reason  that  it  is 
one  which  finds  no  "  countenance  in  the  practice  of  our  Govern- 


252    THE  THEORY  AND   PRACTICE  OF  TAXATION. 

The  principle  here  involved  may  be  further  illustrated 
by  reference  to  a  curious  chapter  of  railroad  experience. 
Some  years  ago  the  managers  of  one  of  the  great  railroads 
of  the  United  States  appropriated  a  part  of  its  receipts 
from  the  carriage  of  freight  and  passengers  to  the  support 
of  an  opera  house  and  a  corps  of  ballet  dancers.  Extraor- 
dinary as  was  this  procedure,  there  was  no  question  that  the 
directors,  who  were  trustees  for  the  stockholders,  had  the 
right  to  determine  how  the  earnings  of  the  road  should 
be  applied,  so  long  as  the  stockholders  failed  to  restrain 
them  or  prevent  their  continuance  in  office;  and  as  they 
did  not,  no  legal  action  or  restraint  of  their  singular  use 
of  the  receipts  of  the  property  was  attempted.  But  if 
these  same  directors  had  decided  not  to  take  money  directly 
from  the  aggregate  earnings  of  the  railroad  for  the  fur- 
therance of  their  peculiar  views,  but  that  in  addition  to 
certain  rates  for  transportation  all  passengers  and  freight 
should  pay  a  special  sum  (tax)  for  the  support  of  the 
opera  house,  the  state  would  have  undoubtedly  and  prop- 
erly intervened  and  forbidden  its  collection,  on  the  ground 
that  the  railroad  was  not  chartered  (called  into  existence) 
for  any  such  purpose,  and  that  the  attempt  to  use  any 
power  other  than  what  was  granted  or  contemplated  in  its 
charter  was  illegal  and  unwarranted. 

Again,  if  the  legislative  department  of  the  state  decides 
that  it  would  be  expedient  to  establish  or  stimulate  the 
manufacture  of  certain  commodities,  no  one  under  a  free 
government  would  venture  openly  to  justify  such  action, 
except  on  the  ground  that  public  welfare  would  be  thereby 
promoted,  although  practically  such  justification  in  the 
United  States  has  long  since  ceased  to  be  other  than  a 
pretence  and  a  cover  for  the  promotion  of  private  interests. 
Suppose,  for  example,  that  the  manufactvire  of  the  com- 
modity which  it  is  proposed  to  stimulate  is  tin  plate,  and 
it  is  decided  that  the  desired  result  can  be  best  attained  by 
giving  the  domestic  manufacturer  the  difference  between 
what  his  product  will  sell  for  in  a  free  market  and  what 

ment,  or  indeed  that  of  any  other."  But  if  this  contention  is 
valid,  then  it  may  be  pleaded  with  equal  effect  for  the  justifica- 
tion and  continuance  of  every  practice  which  old-time  views  and 
long  usage  have  tolerated,  but  which  a  higher  civilization  or  a 
broader  culture  demands  shall  be  abrogated. 


INDUSTRY   AND   STATE  AID.  253 

he  can  make  it  for — say  fifteen  million  dollars  per  annum — 
it  would  seem  to  be  only  simple  justice  that  the  state  should 
fairly  and  honestly  pay  the  sum  representing  this  differ- 
ence, and  raise  the  money,*  not  by  a  tax  on  the  consumers 
of  the  product  artificially  maintained,  who  are  no  more 
interested  in  the  matter  than  all  other  citizens,  but  by  a 
levy  upon  the  community  at  large,  in  the  same  equitable 
manner  as  it  raises  money  to  defray  its  other  expenses.  In 
short,  if  any  industry  can  not  live  without  state  aid,  and  it 
is  for  the  public  welfare  that  it  should  live,  let  the  state 
directly  subsidize  it,  and  not  maintain  it  by  allowing  pri- 
vate interest  arbitrarily  to  exercise  the  great  sovereign 
power  of  taxation,  f 

*  A  written  public  statement  made  by  a  Senator  of  the  United 
States  (George  F.  Hoar)  in  1892,  that  an  assertion  by  the  Na- 
tional Democratic  party  of  the  United  States  in  its  presidential 
platform  of  that  year,  that  "  the  Federal  Government  has  no  con- 
stitutional power  to  enforce  and  collect  tariff  duties  except  for 
the  purpose  of  revenue  only,"  was  equivalent  to  an  unveiling  of 
an  opinion  that  "  the  American  people  alone,  of  all  civilized  na- 
tions, have  no  power  to  do  anything  for  the  encouragement  of 
their  own  industries,"  displayed  an  amount  of  ignorance  and  mis- 
conception of  the  powers  and  objects  of  the  Government  he  served 
which,  to  say  the  least,  was  discreditable  to  its  author. 

t  "  Granting  that  it  is  expedient  for  the  Government  to  spend 
money  in  the  maintenance  or  the  promotion  of  the  iron  manu- 
facture, for  example,  it  must  be  expedient  also  that  the  public 
should  know  the  exact  amount  which  it  costs  annually,  just  as 
it  is  expedient  that  the  public  shoidd  know  exactly  how  much 
the  army  and  navy  costs,  or  how  much  the  annual  improvement 
of  rivers  and  harlaours  costs.  No  view,  however  broad,  of  the 
province  of  government  can  furnish  an  excuse  for  concealing  the 
expense  of  any  great  national  undertaking.  .  .  .  But  there  is  no 
trace  of  this  expenditure  in  the  national  accounts.  .  .  .  Next,  it 
must  be  said  that  any  fund  of  large  amount,  raised  and  distribiited 
in  this  way,  must  of  necessity  prove  a  corruption  fund.  By  this 
I  do  not  mean  a  fund  distributed  in  bribes  to  individuals  or  organ- 
izations, but  a  fund  the  existence  of  which  must  be  constantly 
present  to  the  mind  of  the  lazy,  the  improvident,  or  incompetent, 
as  something  to  fall  back  on  if  the  worst  come  to  the  worst. 
Suppoi^e  the  national  appropriations  for  the  purpose  of  protecting 
manufacturing  industry  were  made  in  the  ordinary  way  by  a  dis- 
tinct vote  of  Congress;  were  made,  for  instance,  as  the  appropria- 
tions for  the  promotion  of  the  carrying  trade — the  steamship  sub- 
sidies, as  they  are  called — are  made  in  the  shape  of  an  annual 
maximum  sum.  Suppose  this  sum  were  paid  over  to  the  corpora- 
tions or  individuals  engaged  in  each  manufacture  on  their  giving 
proof  that  they  were  carrying  on  a  bona-flde  business.     Suppose 


254    'i'lIE   THEORY  AND   PRACTICE   OP  TAXATION. 

This  was  the  idea  of  Alexander  Hamilton,  who  in  the 
early  days  of  the  republic  favoured  state  interference  with 
the  pursuits  of  the  people  to  a  large  extent,  as  the  best 
method  by  which  domestic  manufacturing  should  be  stimu- 
lated by  the  state.  This  idea,  however,  found  no  more 
favour  with  the  parties  specially  interested  at  that  time 
than  it  would  at  present;  inasmuch  as  a  brief  practical 
experience  would  so  soon  demonstrate  the  smallness  of  the 
revenue  necessary  to  be  raised  by  honest-^xation  for  the 
direct  maintenance  of  an  industry  by  the  state,  in  com- 
parison with  the  amount  raised,  for  the  most  part  by  in- 
equitable and  unjust  taxation,  for  the  support  of  that  form 
of  interference  by  the  state  Avith  production  which  goes 
under  the  name  of  "  protection,"  as  to  make  any  long 
toleration  of  the  latter  policy  by  a  free  people  exceedingly 
unlikely. 

Generic  Difference  between  the  "  Taxing  "  and 
"  Police  "  Powers  of  the  State. — Attention  is  next 
asked  to  the  generic  difference  between  the  "  taxing '"  and 
"police"  powers  of  the  state  (to  which  a  brief  reference 
has  been  made  already),  and  to  the  incongruities  and  gov- 
ernmental abuses  that  inevitably  result  from  a  lack  of  full 
recognition  of  this  fact.  The  object  of  the  taxing  power 
is  to  raise  money  to  defray  the  expenditures  of  the  state, 
and  proof  and  argument  seem  conclusive  that  it  can  not 
be  legitimately  used  for  anything  else.  By  the  power  of 
police  is  understood  the  internal  regulation  of  the  affairs 
of  the  state  in  the  interest  of  good  order.  The  idea,  there- 
fore, of  resorting  to  taxation  for  the  purpose  of  protecting 
individuals  against  their  own  foolishness,  enforcing  moral- 
ity, preventing  social  evils,  or  as  an  instrumentality  for 
the  punishment  of  crime,  is  to  pervert  an  agency  from 
the  one  sole  purpose  for  which  it  can  rightfully  exist  to 
another  less  fit  and  not  warranted  by  necessity,  and  pre- 
supposes an  entire  misconception  of  the  principles  of  a 

that  to  each  were  given  as  much  as  would  meet  the  loss,  as  shown 
by  his  books,  incurred  by  him  in  competing  with  foreigners  in  the 
home  markets.  .  .  .  The  political  objections  to  the  protective  sys- 
tem can  not  be  made  so  clear  as  by  inquiring  how  the  plan  of  dis- 
tributing the  money  directly  by  the  public  Treasury  would  work." 
— E.  L.  Godkin,  Problems  of  Modern  Democracy,  in  Some  Political 
Aspects  of  the  Tariff,  p.  98. 


TAXING  AND  POLICE   POWERS.  255 

free  government ;  and  all  perversions  of  this  power  are  cer- 
tain to  entail  evils  greater  than  the  abuses  which  it  is  de- 
vised to  remedy.  If  the  prosecution  of  any  trade  or  occu- 
pation, or  the  manufacture  and  use  of  any  product,  consti- 
tutes an  evil  of  sufficient  magnitude  to  call  for  adverse 
legislation,  let  the  state  proceed  against  it  directly,  coura- 
geously, and  with  determination.  To  impose  taxes  upon 
an  evil  in  any  degree  short  of  its  prohibition  is  in  effect  to 
recognise  and  license  this  evil.  To  demand  a  portion  of 
the  gains  of  a  person  practising  fraud,  may  be  an  effectual 
method  for  putting  an  end  to  his  knavery  by  making 
his  practices  unprofitable;  but  it  would  be,  all  the  same, 
a  very  poor  way  for  a  state  to  adopt  as  a  means  for  sup- 
pressing fraud.  If  absolute  prohibition  is  the  object,  then 
such  result  should  be  attained  through  the  police  force  of 
the  state,  and  through  its  legislative  enactments  making 
the  act,  powers,  or  products  which  it  is  desired  to  suppress, 
misdemeanours  or  felonies.  The  manufacture  and  sale  of 
spirituous  liquors,  in  common  with  all  other  branches  of 
business,  is  a  legitimate  subject  for  taxation,  but  there  is 
a  broad  distinction — indeed,  nothing  in  common — between 
taxing  this  business  for  revenue  and  in  levying  taxes  with 
a  view  of  preventing  the  business  from  being  transacted 
at  all,  and  so  preventing  revenue. 

Again,  if  the  above  analysis  of  the  origin,  justification, 
and  limitations  of  the  power  of  taxation  is  correct,  it  would 
seem  evident  that  to  seek  to  make  the  occasion  for  the 
exercise  of  the  power  other  than  necessity,  and  the  object 
anything  else  than  the  raising  of  money  for  meeting  the 
expenditures  of  a  government  economically  administered, 
is  to  strike  a  blow  at  not  only  good  government,  but  also 
at  free  government.  It  is  also  a  flat  denial  of  the  authori- 
tative statement  of  the  United  ^tates  Supreme  Court  that 
"  there  are  rights  in  every  free  government  beyond  the  con- 
trol of  the  state,"  and  that  the  theory  of  our  Government, 
State  and  national,  admits  of  no  place  for  the  deposit  of 
unlimited  power.  For  the  deliberate  recognition  and  in- 
dorsement of  the  right  on  the  part  of  the  state  to  dis- 
regard these  limitations  in  a  single  instance,  is  equiva- 
lent to  a  denial  that  there  are  any  such,  and  certainly 
in  this  one  department  makes  the  Government  despotic 
rather  than  free.     Once  recognise  the   principle   of   in- 


256    THE  THEORY  AND   PRACTICE   OF   TAXATION. 

equitable  taxation,  and  no  one  can  foresee  how  far  it  may 
be  carried. 

If  it  is  contended,  as  it  is,  that  the  use  of  the  power 
of  taxation  for  purposes  other  than  the  collection  of  reve- 
nue finds  justification  in  the  fact  that  "  the  law-maker 
must  look  far  enough  beyond  the  general  purpose  to 
satisfy  himself  how  any  proposed  levy  is  likely  to  affect 
the  general  good,"  a  sufficient  answer  to  such  contention 
would  seem  to  be  that  the  general  good  is  always  best 
subserved  by  doing  what  is  exactly  right,  and  not  what  is 
expedient. 

There  is  no  question  that  the  Federal  Government  of 
the  United  States,  under  its  peculiar  organization,  is  ex- 
cluded from  all  responsibility  for  the  internal  order  or 
morality  of  the  States  that  make  up  the  Union,  and  under 
such  circumstances  it  follows  that  where  Congress  assumes 
that  the  consumption  or  use  of  certain  commodities  is 
prejudicial  to  the  interests  of  the  people  (as  it  has  done, 
as  will  hereafter  be  shown),  and  attempts,  when  providing 
means  for  the  support  of  the  Federal  administration,  to 
embody  such  assumptions,  with  a  view  of  prohibitions  or 
restraints,  in  measures  of  revenue,  it  is  also  enacting 
sumptuary  laws  *  and  imposing  taxes,  not  in  accordance 
with  any  rule  of  equity,  but  by  reason  of  some  arbitrary 
and  sentimental  notions  of  how  a  citizen  ought  to  live, 
dress,  eat,  and  drink.  In  the  case  of  the  several  States  of 
the  Union,  whose  power  of  taxation  is  practically  unlim- 
ited, such  action  is  in  the  nature  of  oppression ;  but  in  the 
case  of  the  Federal  Government,  whose  powers  of  taxation 
are  carefully  limited  by  its  Constitution,  it  is  clearly  an 
act  of  usurpation.  In  further  elucidation  of  this  matter, 
it  is  interesting  to  note,  that  probably  no  example  can  be 
found  in  history  in  whic]^  an  attempt  has  been  made  to 
continue  the  raising  of  revenue  with  the  regulation  of 
popular  consumption,  that  has  not  resulted  in  failure  as 
respects  the  attainment  of  both  objects. 

One  of  the  most  notable  perversions  of  the  correct  prin- 

*  "Sumptviary:  Relatinsr  to  expense.  Laws  or  reprulations 
which  restrain  or  limit  the  expenses  of  citizens  in  apparel,  food, 
furniture,  etc.  Sumptuary  laws  are  abridprments  of  liberty  and 
of  very  difficult  execution.  They  can  be  justified  only  on  the 
ground'  of  extreme  necessity." — Webster's  Dictionary. 


SUMPTUARY   LAWS.  257 

ciples  of  taxation  for  the  purpose  of  affecting  the  popular 
consumption  of  a  commodity,  has  been  the  comparatively 
recent  attempt  of  the  Federal  Congress  (act  of  August, 
1886)  to  prevent  the  use  of  one  of  the  great  discoveries 
of  the  age — namely,  the  manufacture  of  artificial  butter, 
which,  when  properly  prepared,  is  a  most  valuable  and  per- 
fectly healthy  addition  to  the  food  resources  of  the  people. 
The  practical  results  of  this  attempt  are  exceedingly  cu- 
rious and  ought  to  be  in  the  highest  degree  instructive. 
The  burden  of  the  tax — two  cents  per  pound,  and  special 
taxes .  on  manufacturers,  wholesale  and  retail  dealers — 
which  was  intended  to  be  prohibitory,  has  not  been  suffi- 
cient to  accomplish  the  object  of  its  levy;  for  the  annual 
production,  sale,  and  consumption  of  oleomargarine  in  the 
United  States  have  continually  increased  (from  34,325,000 
pounds  in- 1888  to  48,364,000  in  1892,  and  69,632,000  in 
1894).  The  Federal  courts  having  decided  that  it  is  mer- 
chantable, the  States  may  to  a  certain  extent  also  regulate 
its  sale,  but  can  not  prevent  its  importation.  The  Federal 
Government  furthermore  derives  a  considerable  revenue 
from  its  domestic  manufacture  and  sale  ($1,409,211  in 
1895),  and  an  annual  large  and  increasing  quantity  for 
the  consumption  and  use  of  foreign  countries  is  exported 
(127,193,000  pounds  in  1894)  ;  and  clearly,  if  such  pro- 
duction and  sale  are  fraudulent  and  wrong,  the  Govern- 
ment has  become  a  partner  in  such  fraud  and  wrong  and 
in  effect  licenses  them. 

It  is  also  an  interesting  fact  that  this  idea  of  resorting 
to  taxation  for  the  primary  purpose  of  enforcing  morality 
and  preventing  social  wrong  is  a  comparatively  modern 
idea,  and  finds  its  chief  exemplification  in  the  United 
States. 

The  lesson  of  all  history  is  to  the  effect  that,  save  in 
the  case  of  war  or  invasion,  nations  have  rarely  or  never  lost 
a  freedom  once  possessed,  except  through  the  tolerance 
(born  of  indifference)  of  a  succession  of  gradual  and  in- 
sidious perversions  and  weakening  of  those  fimdamental 
principles  which  must  be  maintained  unimpaired  to  make 
popular  liberty  possible.  And  it  is  alike  startling  and 
discouraging  to  note  how  rapidly,  in  recent  years,  the 
United  States,  as  a  political  entity,  has  been  travelling  in 
this  direction. 


258    THE  THEORY  AND  PRACTICE  OF  TAXATION. 
Theory  of   the   Powee   of   Taxation   originally 

ENTERTAINED    BY    THE    AMERICAN    PEOPLE. The    idea    of 

using  the  power  of  taxation  for  other  purposes  than  that 
of  obtaining  revenue  for  defraying  the  necessary  expendi- 
ture of  the  Government,  was  one  hostile  at  the  outset  to  all 
the  beliefs  and  habits  of  thought  of  the  American  people; 
was  totally  incongruous  with  the  social  and  political  system 
which  they  instituted  and  expected,  and  was  reluctantly 
admitted  under  the  idea  that  the  industries  of  a  new 
country  might  need  some  temporary  stimulus  and  assist- 
ance at  the  outset.*  The  party  (old  Whig)  that  in  sub- 
sequent 3'ears  specially  advocated  the  policy  of  protection 
to  domestic  industries,  always  also  admitted  that  the  Fed- 
eral Government  had  no  original  right  to  exercise  the  power 
of  taxation  except  for  revenue,  but  it  claimed  that  taxes 
on  imports  might  and  should  be  so  adjusted  as  to  afford 
protection  for  our  infant  industries.  And  in  this  they  were 
joined  by  some  members  of  the  other  great  national  party 
— the  Democratic — who  argued  in  favour  of  what  was 
called  "  incidental "  protection,  or  the  protection  which 
inevitably  results  in  a  greater  or  less  degree  from  the  im- 
position of  duties  without  any  such  premeditated  purpose. 

Theory  and  Practice  of  Later  Days. — But  it  was 
not  until  after  the  termination  of  the  war  in  1865  that 
anybody  in  the  United  States  ventured  to  openly  main- 
tain or  defend  the  proposition  that  protection  was  other 
than  the  incidental  and  not  the  main  object  of  the  exer- 
cise of  the  taxing  power,  although  this  perversion  of  prin- 
ciple was  tacitly  recognised  by  the  imposition  and  con- 
tinuance of  taxes  which  had  for  their  intent,  or  resulted 
in,  a  prevention  of  the  raising  of  revenue. 

Illustrative  Examples  of  the  Practical  Perver- 
sion of  the  Theory  and  Principles  of  Taxation. — 
One  of  the  most  instructive  examples  of  this  kind  was 
afforded  by  the  imposition  of  a  tax  in  1869  of  five  cents  a 
pound  on  the  importation  of  crude  or  unmanufactured 
copper;  which  proved  so  prohibitive  that  in  one  year 
(1878)  revenue  to  the  extent  of  only  five  cents,  accruing 

*  The  doctrine  of  Hamilton  was  that  while  the  payment  of 
bounties  for  the  encouragement  of  new  industrial  undertakings 
was  justifiable,  their  "  continuance  on  manufactures  long  estab- 
lished was  most  questionable." — Report  on  Mannfactures,  1191. 


DUTIES  FOR  PROTECTION.  259 

from  the  importation  of  only  one  pound  of  copper,  was 
collected.  The  legislators  who  enacted  the  law  productive 
of  such  a  result  might  have  pleaded  in  justification  that 
revenue  was  their  intent ;  *  but  when  a  brief  experience 
had  proved  that  the  taxing  power  had  been  used  to  pre- 
vent the  raising  of  revenue  by  the  state,  and  for  a  differ- 
ent purpose,  it  was  evident  that  a  continuance  of  the 
policy  (and  the  tax  was  long  retained)  was  in  effect  a 
justification  and  an  indorsement  of  it.  To  complete  the 
illustration,  it  should  be  further  pointed  out  that  the  re- 
sult of  this  perversion  of  the  taxing  power  was  to  enable 
the  owners  of  copper  mines  in  the  United  States,  especially 
certain  ones  of  unprecedented  richness — formerly  the  prop- 
erty of  the  United  States,  but  sold  for  a  mere  song — to 
extort  for  a  period  of  years  from  the  people  of  the  whole 
country  the  sum  of  five  cents  for  every  pound  of  copper 
they  consumed,  but  from  which  exaction  (aggregating  mil- 
lions) the  people  of  other  countries,  who  consumed  the 
large  surplus  product  of  American  copper  exported,  were 
exempt,  as  the  tax  laws  of  all  countries  have  no  extra-ter- 
ritorial jurisdiction.  During  the  discussion  and  defence 
of  this  tariff  enacted  in  1890,  however,  all  pretence  and 
evasion  were  discarded,  and  the  position  openly  taken  that 
the  Government  could  rightfully  levy  taxes,  not  for  the 
purpose  of  raising  revenue,  and  not  to  subserve  any  neces- 
sity of  the  state,  and  under  the  name  of  protection  delegate 
to  private  or  corporate  interests  the  right  to  collect  and 
appropriate  them. 

It  has  been  contended  by  authorities  worthy  of  all  re- 
spect (the  late  George  Ticknor  Curtis,  for  example)  that 
there  is  no  perversion  of  the  taxing  power  in  the  levy  of 
duties  on  imports  by  the  Federal  Government  for  pur- 
poses other  than  revenue,  for  the  reason  that  "  duties  are 
not  taxes,  but  assessments,  in  the  nature  of  tribute  imposed 
on  merchandise  imported  from  other  countries,"  and 
that  "  when  the  Government  levies  duties  on  foreign  prod- 
ucts," under  the  provision  of  the  Constitution  that  "  Con- 
gress shall  have  power  to  lay  and  collect  taxes,  duties,  im- 

*  The  United  States  Supreme  Court  has  held  that  the  judicial 
power  can  not  inquire  into  the  intentions  of  Confjress  in  imposing 
a  tax;  and  that,  if  injustice  is  done,  the  only  remedy  is  an  appeal 
to  the  legislative  power  that  has  inflicted  it. 


260  THE  THEORY  AND  PRACTICE  OF  TAXATION. 

posts,  and  excises/'  "  it  does  not  exercise  or  pretend  to 
exercise  its  taxing  power."  * 

In  answer  to  this  it  is  to  be  said,  first,  that  the  appli- 
cation of  different  names  to  one  and  the  same  act  does 
not  alter  the  nature  of  the  act.  Second,  that  usage  and  au- 
thorities among  all  nations  and  at  all  times  are  in  unison 
in  regarding  such  terms  as  imposts,  duties,  excises,  cus- 
toms, tolls,  gabelle,  talliage,  tribute,  and  the  like,  when 
used  in  respect  to  the  fiscal  functions  of  a  government, 
as  expressive  simply  of  different  methods  of  effecting  one 
and  the  same  object — namely,  the  compelling  of  contribu- 
tions from  persons,  property,  or  business  for  the  use  or  sup- 
port of  the  state.  The  contention,  then,  thus  far  is  simply 
a  quibble  as  to  the  meaning  of  words.  Third,  the  authority 
given  to  Congress  by  the  Constitution  "  to  lay  and  collect 
'  imposts,'  in  connection  with  taxes,  duties,  and  excises," 
does  not  warrant  the  assumption  that  any  of  these  acts 
of  levying  and  collection  are  to  be  by  methods  that  are  not 
primarily  for  the  purpose  of  raising  revenue  (money)  for 
the  service  of  the  state,  or  are  antagonistic  to  the  struc- 
ture of  a  free  government.  Following  the  precedents  be- 
fore noted,  a  measure  known  as  the  Anti-option  Bill  was 
introduced  and  found  favour  in  Congress,  which  was  noth- 
ing more  nor  less  than  an  attempt  to  make  people  dealing 
in  certain  staple  agricultural  commodities  honest  by  the 
exercise  of  the  taxing  power;  a  measure  devised  for  effect- 
ing indirectly  that  which  it  would  be  unconstitutional  to 
do  directly — namely,  to  prevent  trading  in  cotton,  grain, 

*  Mr.  Curtis  does  not  repeat  this  statement  in  his  Constitu- 
tional History  of  the  United  States.  In  the  second  volume  he 
had  contemplated  a  note  on  a  "  tariff  for  revenue  only,"  but  his 
intention  was  laid  aside,  and  the  following  appears: 

"  This  question  being  in  the  domain  of  party  politics  rather 
than  in  that  of  constitutional  history,  the  note  suggested  at  p.  190 
is  omitted.  Whether  protection  to  manufacturers  should  be  the 
direct  object  of  a  tariff,  or  whether  it  should  be  incident  thereto, 
appear  to  be  matters  of  mere  verbal  dispute.  Every  tariff  is  for 
revenue:  and  every  tariff  is  intended  to  be  so  laid  as  to  protect 
rather  than  to  injure.  If  a  tariff  were  laid  for  protection  only, 
it  would  find  no  constitutional  warrant.  Whether  or  not  a  given 
tariff  discriminates  unfairly  in  favour  of  one  class  at  the  expense 
of  the  others  is  a  question  for  the  law-making  power  to  decide; 
and  self-interest  and  party  spirit  will  largely  determine  the  con- 
duet  of  legislators  upon  that  question"   (p.  691). 


ANTI-OPTION  LEGISLATION.  261 

hops,  meats,  etc.,  for  future  delivery,  by  first  assuming 
that  all  such  sales  are  "  immoral,  unnatural,  unjust,  and 
injurious,"  and  then  attempting  to  put  an  end  to  them, 
not  by  the  exercise  of  the  police  power  of  the  several  States, 
but  by  licensing  and  taxing  them  by  the  Federal  Govern- 
ment under  pretence  of  collecting  revenue,  when  by  the 
very  terms  of  the  bill  no  taxes  productive  of  revenue  are 
likely  to  accrue  from  its  provisions.  It  is  difficult  to  see 
why,  if  this  extraordinary  measure  had  become  law  and 
obligatory  on  all  citizens,  the  policy  of  restraint  involved 
should  not  have  been  made  also  applicable  to  the  buying 
and  selling  of  all  articles  other  than  cotton  and  cereals — 
as  cloth,  stoves,  boots  and  shoes,  securities — and  even  per- 
sonal service ;  and  why,  if  it  is  right  to  extinguish  one  trade 
or  calling  by  taxing  it,  every  other  may  not  be  uprooted 
and  extinguished  in  the  same  way.* 

*  As  pertinent  and  most  instructive  on  this  subject,  attention 
is  asked  to  the  following  extract  from  a  speech  of  Hon.  Edward 
D.  White  (then  a  Senator  of  the  United  States  from  Louisiana, 
and  now  a  judge  of  the  United  States  Supreme  Court),  in  the 
course  of  a  debate  in  the  Senate  in  July,  1892,  on  the  so-called 
Anti-option  Bill :  "  No  power  as  to  imposts  was  reserved  in  the 
States  by  the  Federal  Constitution.  All  the  lawful  powers  of 
government  which  could  be  exercised  in  that  particular  passed 
into  the  life  and  being  of  the  Federal  Government  by  the  lodgment 
in  that  Government  of  the  power  to  levy  imposts.  In  my  judg- 
ment, if  complaint  is  made  of  import  taxes  by  the  Federal  Gov- 
ernment, levied  not  for  the  purpose  of  revenue,  but  for  protection 
or  prohibition,  the  complaint  is  not  that  the  Federal  Government 
violates  the  Constitution  or  the  limitations  of  the  Constitution, 
because  as  to  that  all  authority  is  granted  by  the  Constitution. 
When  I  say  this  I  mean  no  limitation  by  the  Constitution  by  ex- 
press provision  of  the  Constitution.  The  complaint  of  undue  or 
prohibitory  external  imposts  is  not  that  the  Constitution  has  been 
violated. 

"  No,  but  that  there  has  been  a  violation  of  the  great  funda- 
mental and  elementary  principle  of  all  government,  which  under 
lies  all  constitutions,  which  affect  this  Government  and  every 
other  government,  and  which  would  affect  the  most  unlimited 
government  in  the  world.  These  principles  are.  that  government 
is  created  with  limitations  flowing  from  the  nature  of  its  being, 
which  teach  that  no  government  shall  use  its  power  for  the  benefit 
of  the  few  to  the  detriment  of  the  many.  Therefore,  all  the  argu- 
ments which  have  been  made  on  the  subject  of  the  abuse  of  the 
impost  power  in  the  Federal  Government  are  arguments  address- 
ing themselves  not  to  the  limit  of  delegation  under  the  Constitu- 
tion as  to  imposts,  but  to  the  want  of  power  arising  from  the 


262    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

Another  proposition  which  has  received  the  indorsement 
of  high  judicial  anthority  in  the  United  States  *  is  to  em- 
ploy Federal  taxation  for  the  crushing  out  of  State  lot- 
teries, with  the  absurd  accompaniment  of  no  revenue 
(taxes) ;  for  if  the  desired  object  is  attained,  the  payment 
of  taxes  and  the  procurement  of  revenue  will  be  prevented. 
It  seems  clear,  also,  that  if  such  a  measure  was  once  adopted 
it  would  constitute  a  precedent  and  authority  for  the  de- 
struction by  the  Federal  Government,  through  the  exer- 
cise of  the  taxing  power,  of  nearly  every  faculty  or  power 
now  belonging  to  and  exercised  by  the  several  States;  and 
that  houses  of  prostitution,  gambling  and  liquor  saloons, 

very  nature  of  government  itself.  The  usurpation  of  power  by 
Congress,  not  vested  by  the  Constitution  in  Congress,  is  uncon- 
stitutional." 

In  the  course  of  the  debate  to  which  reference  has  been  made, 
Mr.  White,  in  response  to  a  question  as  to  what  he  would  as  a 
Senator  consider  his  duty  in  respect  to  a  bill  proposed  to  Con- 
gress for  enactment  which,  while  undoubtedly  productive  of  rev- 
enue, was  intended  for  some  other  purpose,  made  answer  as  fol- 
lows: "I  would  have  two  questions  to  ask  myself:  Is  this  a  bill 
raising  revenue?  That  is  the  first  question.  If  I  determine  that 
question  in  the  aflSrmative,  the  lamp  of  my  duty  might  lead  my 
mind  toward  supporting  that  bill,  but  it  could  not  carry  me  to 
that  point  unless  another  question  were  also  answered:  Is  it  an 
honest  exercise  of  the  taxing  power,  or  is  it  a  dishonest  scheme 
to  raise  revenue  and  accomplish  another  purpose?  If  my  mind, 
in  the  exercise  of  my  duty  here,  found  that  either  of  these  tilings 
existed,  then,  although  it  was  a  bill  raising  revenue,  I  would  not 
vote  for  a  dishonest  bill  raising  revenue." 

The  point  here  at  issue  was  also  cleai-ly  recognised  by  President 
Cleveland,  in  his  message  in  1886,  announcing  his  signature  to  a 
bill  (above  noticed)  for  taxing  oleomargarine,  where  the  real  intent 
of  taxation  was  popularly  assumed  to  be  prohibitive  of  production 
and  sale  and  not  revenue.  "  It  has  been  urged,"  he  said,  "  as  an 
f)bjection  to  this  measure  that  while  purporting  to  be  legislation 
for  revenue,  its  real  purpose  is  to  destroy,  by  the  use  of  the  taxing 
power,  one  industry  of  our  people  for  the  protection  and  benefit 
of  another.  If  entitled  to  indulge  in  such  a  suspicion  as  a  basis 
of  official  action  in  this  case,  and  if  entirely  satisfied  that  the 
consequences  indicated  would  ensue,  I  should  doubtless  feel  con- 
strained to  interpose  executive  dissent."  In  other  words,  the 
President  took  the  bill  as  it  came  to  him  as  ostensibly  a  revenue 
measure,  and  in  the  exercise  of  his  executive  prerogative  passed 
upon  it  as  such,  but  at  the  same  time  he  was  careful  to  say  in  this 
message  that  if  that  bill  had  not  presented  that  aspect  to  him, 
he  Avould  have  been  constrained  to  exercise  the  executive  veto. 

*  Judge  Cooley,  Atlantic  Monthly,  April,  1892. 


SUPPRESSION  OF  LOTTERIES.  263 

opium  "  joints,"  and  other  haunts  of  vice  now  under  the 
control  and  supervision  of  the  police  powers  of  the  States, 
might  be  regulated  or  suppressed  by  Federal  taxation,  as 
well  as  lotteries.* 

It  should  also  be  remembered  that  lotteries,  if  they 
exist  at  all  in  the  United  States,  must  do  so  under  the 
authority  of  State  laws;  that  Congress  can  not  take  from 
a  lottery  company  the  charter  which  a  State  Legislature 
haa  granted;  or  make  the  issue  of  its  tickets  illegal,  or 
punish  as  a  crime  the  action  of  the  managers  by  whom 
the  business  of  a  lottery  is  carried  on ;  and  further,  that 
any  legislation  to  make  lotteries  illegal  should  inferentially 
pertain  to  the  State :  first,  because  no  jurisdiction  has  been 
given  under  the  Constitution  to  Congress,  except  by  remote 
inference,  to  interfere  with  this  matter;  and,  second,  be- 
cause there  is  no  doubt  that  there  was  a  complete  unanimity 
of  opinion  among  its  framers  that  lotteries  were  legitimate 
and  unobjectionable  instrumentalities  of  society,  inasmuch 
as  at  the  time  the  Constitution  was  framed  they  were  au- 
thorized by  the  States  and  extensively  employed  through- 
out the  country  for  the  founding  of  schools  and  colleges, 
and  the  erection  of  churches,  hospitals,  and  the  construction 
of  roads,  bridges,  and  ferries.  On  the  other  hand,  it  does 
not  admit  of  contention  that  under  the  exclusive  power 
vested  by  the  Constitution  in  the  Federal  Government  to 
"  establish  post  offices  and  post  roads,"  the  use  of  the  mails 
for  the  transmission  of  lottery  tickets  and  correspondence 
may  be  legitimately  inhibited,  or  that  the  general  business 
of  lotteries  may  not  be  rightfully  made  suljject  to  Federal 
taxation  for  the  sole  purpose  of  revenue.  When  the  Pro- 
vincial Legislature  of  Canada  recently  decided  to  suppress 
lotteries  in  the  Dominion,  the  measures  which  it  instituted 
for  so  doing  were  not  made  contingent  in  any  way  upon 
the  power  of  taxation,  but  by  the  imposition  of  heavy  fines 
and  penalties,  not  only  on  those  engaged  in  the  business, 
but  also  upon  those  having  lottery  tickets  in  their  pos- 
session. 

During  the  early  years  of  the  late  war,  taxes  were  im- 


*  "  Congress  is  not  empowered  to  tax  for  those  purposes  which 
are  in  the  exclusive  province  of  the  States." — United  States  Su- 
preme Court,  Gibbons  vs.  Ogden,  9  Wheaton,  i,  199. 


264    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

posed  on  the  circulation  of  the  State  banks,  "  manifestly 
with  a  view  to  raise  revenue  and  inform  the  authorities 
of  the  amount  of  paper  money  in  circulation,  and  for  no 
other  purpose."  But  in  1865  these  taxes  were  greatly  in- 
creased, not  for  revenue,  but  Avith  the  admitted  intent  of 
destroying  all  banking  institutions  chartered  by  the  States, 
leaving  only  similar  institutions  chartered  by  the  Federal 
Government  in  existence.  The  result  sought  was  fully 
attained,  and  the  constitutionality  of  the  legislation  by 
which  it  was  achieved  was  subsequently  affirmed  by  the 
United  States  Supreme  Court,  which  in  the  case  of  Veazie 
vs.  Fenno  (8  Wall.,  p.  552)  nevertheless  held  that  "the 
States  possessed  the  power  to  grant  charters  to  State 
banks,"  that  "  the  power  was  incident  to  sovereignty,  and 
that  there  was  no  limitation  in  the  Federal  Constitution  " 
of  such  power.  But  in  delivering  the  opinion  of  the  court, 
the  Chief  Justice  (Chase)  declined  to  enter  upon  an  in- 
quiry whether  the  tax  imposed  on  the  State  banks  was  so 
excessive  as  to  divulge  the  legislative  intention  to  prohibit 
banking  on  their  part,  but  he  argued  elaborately  that  for 
another  and  stronger  reason  the  tax  could  be  constitu- 
tionally imposed  because  it  was  a  tax  levied  for  a  lawful 
purpose,  which  lawful  purpose  was  to  restrain  a  State 
from  interfering  with  the  Federal  control  of  the  currency 
and  the  right  of  the  national  Government  to  emit  bills  of 
credit,  and  it  was  upon  that  point  that  the  decision  of 
the  Supreme  Court  was  in  fact  rendered. 

The  point  of  interest  in  this  decision,  however,  is  not 
the  right  of  the  Federal  Government  to  regulate,  especially 
under  the  original  admitted  necessity  for  the  exercise  of 
war  powers,  the  currency  of  the  country,  but  whether, 
having  regard  to  the  limitations  on  the  exercise  of  the  tax- 
ing power  growing  out  of  the  nature  of  a  constitutional 
government,  the  Federal  authorities  were  justified  in  em- 
ploying it  as  an  instrumentality  not  to  collect  revenue  but 
to  prevent  revenue,  and  when  the  desired  end  could  be 
effectually  achieved  by  other  and  unobjectionable  methods ; 
and  on  this  point  the  court,  following  a  well-established 
precedent  of  avoiding  as  far  as  possible  all  conflict  between 
the  judicial  and  legislative  powers  of  the  Federal  Govern- 
ment, avoided  any  direct  expression  of  opinion.  As  the  case 
now  stands,  and  as  Congress  has  refused  to  discontinue 


MISUSE  OF   TAXATION.  265 

the  tax,  it  must  be  regarded  as  equivalent  to  an  assertion 
that  the  Federal  Government  has  the  constitutional  right 
to  exercise  the  taxing  power  not  for  revenue  and  not  by 
reason  of  any  necessity  that  can  justify  it.* 

During  the  recent  discussion  of  the  silver  problem,  an 
eminent  American  writer  on  economic  questions  recom- 
mended that  a  Federal  tax  should  be  imposed  on  silver, 
varying  from  month  to  month  according  to  the  changes 
in  its  market  price  as  bullion,  with  the  view  of  establishing 
and  maintaining  a  parity  of  value  between  gold  and  silver, 
with,  of  course,  a  total  disregard  of  the  sole  object  and 
justification  of  taxation — namely,  revenue. 

But  the  most  curious  illustration  of  the  extent  to  which 
an  entire  misconception  of  the  nature  and  functions  of 
taxation  has  obtained  favour  in  the  United  States  is  to  be 
found  in  a  pamphlet  entitled  Eational  Principles  of  Taxa- 
tion,! recently  published  by  a  Professor  of  Political  Econo- 

*  Concerning  the  legitimacy  and  constitutionality  of  this  pro- 
cedure, a  minority  of  the  Finance  Committee  of  the  United  States 
Senate,  in  a  report  in  May,  1892,  on  a  proposition  to  repeal  this 
tax,  expressed  themselves  as  follows:  Prior  acts  imposing  taxes 
of  one  or  two  per  cent  on  the  notes  of  State  banks,  imposed  for 
revenue  purposes,  the  committee  regard  as  entii-ely  justifiable; 
but  in  respect  to  the  ten-per-cent  tax,  which  neither  produced  nor 
was  intended  to  produce  revenue,  the  committee  say: 

"  This  is  flagrantly  obnoxious  in  its  manifest  perversion  of  the 
taxing  power  conferred  upon  Congress  by  the  Constitution.  .  .  . 
We  think  also  that  a  reasonable  construction  of  the  taxing-power 
clause  in  the  Constitution,  to  wit,  '  the  Congress  shall  have  the 
power  to  lay  and  collect  taxes,  diities,  imposts,  and  excises  to  pay 
the  debts  and  provide  for  the  common  defence  and  general  welfare 
of  the  United  States,  would  mean  that  Congress  shall  pay  the  pub- 
lic debt,  provide  for  the  common  defence,  and  promote  the  general 
welfare  with  the  money  arising  from  such  taxation,  and  not  that 
Congress  shall  have  the  power  to  discharge  these  public  duties  by 
the  mere  framing  of  a  statute  without  any  revenue  resulting  there- 
from. Surely  it  would  be  an  absurdity  for  the  Constitution  to 
say  that  Congress  shall  have  the  power  to  discharge  the  debt  of 
the  United  States  by  the  mere  framing  of  a  statute  or  the  word- 
ing of  a  law.  The  payment  of  money  or  the  transfer  of  things 
of  value  is  the  only  way  by  which  a  debt  can  be  paid.  Therefore 
the  enacting  of  a  law  in  the  name  and  under  the  pretence  of  rev- 
enue which  is  intended  to  raise  no  revenue  in  fact,  but  which  has 
another  and  entirely  different  object,  is  a  gross  and  fraudulent 
perversion  of  the  taxing  power  conferred  by  the  Constitution." 

t  Rational   Principles  of  Taxation.     By  Simon  N.  Patten,  Pro- 
fessor of  Political  Economy,  University  of  Pennsylvania,  1890. 
18 


266     THE   THEORY   AND   PRACTICE   OF   TAXATION. 

my  in  the  University  of  Pennsylvania,  and  included  among 
the  authorized  publications  of  the  university.  In  this  the 
author  advocates  the  levying  of  taxes  by  the  national 
Government  for  the  purpose  of  effecting  "  stability  in 
prices  " ;  and  on  the  assumption  that  a  large  and  increas- 
ing percentage  of  the  national  wealth  is  consumed  in  the 
expenses  of  the  retail  distribution  of  commodities,  proposes 
to  remedy  the  evil  by  imposing  a  discriminating  tax  on 
retail  dealers  so  heavy  as  to  crush  out  all  such  whose  busi- 
ness and  profits  in  a  given  time  do  not  exceed  a  certain 
amount  to  be  prescribed  by  statute.  Among  the  antici- 
pated advantages  enumerated  by  the  author  of  the  adoption 
of  such  a  scheme  would  be  the  saving  of  rent  "  on  one  half 
the  stores  "  of  cities  and  a  great  reduction  of  rent  on  the 
other  half.  "  There  would  be  little  need  of  advertising ; 
.  .  .  the  stocks  of  goods  carried  by  the  whole  trade  would 
be  greatly  reduced,  from  which  there  would  be  great 
saving  of  capital."  But  "  perhaps  the  greatest  saving 
of  all  would  arise  from  the  reductioTi  ijf  the  force  of 
salesmen  and  in  the  cost  of  delivering  goods."  And 
finally,  carried  away  apparently  by  a  beatific  vision  of  the 
glories  of  such  a  tax  millennium,  the  professor  exclaims, 
"  Think  of  all  the  elements  of  economy  in  conjunction, 
and  an  idea  can  be  formed  of  the  amount  of  taxes  that 
could  be  levied  on  retail  dealers  without  putting  the  public 
to  any  inconvenience  !  "  *  and  "  would  not  the  unnecessary 
capital  now  absorbed  in  business  be  fully  sufficient  to 
furnish  us  with  pure  water,  lovely  parks,  fine-art  gal- 
leries," etc.? 

Prospective  Evils  of  the  Perversion  of  the  Tax- 
ing Power. — In  view  of  such  experiences  and  propositions, 
the  questions  are  most  pertinent :  How  much  further  is 
such  a  perversion  of  the  taxing  power  to  be  carried  ?  And 
is  not  the  entire  recent  experience  of  the  nation  in  this 
respect  in  the  direction  of  supplanting  a  "  f  ree  "  by  a  "  pa- 
ternal "  government,  which  last  in  turn  finds  its  highest 
expression  in  the  enactment  of  sumptuary  laws  for  the 

*  Obviously  the  author  of  this  scheme  supposed  that  the  retail 
dealers  of  this  country  are  such  simple-minded  people  that  they 
will  cheerfully  pay  their  proposed  heavy  taxes  out  of  their  capital, 
and  not  transfer  them,  through  increased  prices  of  their  goods,  to 
their  consuming  purchasers. 


EVILS  OF   PERVERSION.  267 

control  by  government  of  the  private  life  of  its  citizens? 
All  despotic  power  is  alike  in  its  nature;  and,  once  in- 
dulged in,  the  results  are  always  the  same.  Once  let  it 
be  fully  accepted  as  a  legitimate  feature  of  public  policy 
that  the  great  public  power  of  taxation  may  be  intrusted 
to  individual  hands  for  private  purposes,  and  the  power  of 
life  and  death  will  be  promptly  seized  to  make  the  former 
effective.  Once  confer  upon  government  the  power  of 
dealing  out  wealth,  and  the  day  is  not  far  distant  when 
its  recipients  will  control  the  Government,  and  by  the  use 
of  money  elect  their  magistrates  and  legislators  to  per- 
petuate this  policy. 

Had  the  framers  of  the  Federal  Constitution  even  so 
much  as  dreamed  that  the  Government  to  be  established 
under  it  would  ever  practically  refuse  to  acknowledge  any 
limitations  on  its  right  to  interfere  with  the  property  of 
its  citizens,  would  use  the  taxing  power  with  undisguised 
intent  for  promoting  private  rather  than  public  purposes, 
and  would  levy  taxes  to  prevent  the  payment  of  taxes,  the 
Constitution  itself  would  never  have  been  called  into  exist- 
ence, and  the  great  American  Eepublic  would  never  have 
had  a  history.* 

*  The  economic  student  and  writer  (and  indeed  almost  the 
only  one)  who  has  discussed  this  subject  in  the  English  language 
with  originality  and  cogency  that  is  most  potent  for  conviction, 
is  Mr.  Theodore  Bacon,  of  Rochester,  N.  Y.,  in  an  article  con- 
tributed to  The  New-Englander  in  1867,  and  to  which  the  author 
acknowledges  his  indebtedness  both  in  respect  to  ideas  and  lan- 
guage. 


CHAPTER   XII. 

THE    SPHERE   OF   TAXATION    PECULIAR   TO   THE    FEDERAL 
GOVERNMENT    OF    THE    UNITED    STATES. 

The  United  States  presents  the  curious  anomaly  of 
a  great  nation  existing  under  two  systems,  or  dual  forms 
of  government;  each  having  a  sphere  of  action  peculiar 
to  itself,  and  both  exercising  the  general  functions  of 
government,  namely:  the  executive,  the  legislative,  and 
the  judicial.  These  two  are  the  Federal  or  national  Gov- 
ernment, existing  in  virtue  of  an  agreement  of  union 
entered  into  originally  by  thirteen  separate  and  inde- 
pendent States,  and  known  as  the  Federal  Constitution; 
and  next,  a  system  of  State  or  divisional  governments, 
existing  in  virtue  of  certain  original  powers  retained  by 
the  independent  and  sovereign  parties  to  the  above  agree- 
ment, and  not  delegated  by  them,  in  entering  the  Fed- 
eral Union,  to  any  other  or  higher  sovereignty.  At  the 
same  time  a  concession  of  power  to  tax  or  compel  con- 
tributions from  persons,  property,  and  business  by  each 
of  these  two  forms  of  government,  in  order  to  defray 
their  necessary  expenditures,  was  obviously  essential  to 
their  existence  and  continuance,  and  was  so  recognised 
from  the  first  inception  of  any  compact  of  union.  But 
how  to  divide  this  power — the  badge  and  symbol  of  sover- 
eignty— between  two  distinct  sovereignties  of  the  same 
nations,  namely,  the  Federal  Congress  and  the  Legisla- 
tures of  the  several  States,  and  impose  limitations  in  both 
cases  on  the  exercise  of  a  function  so  vast  in  its  sweep 
and  so  imperative  in  its  action,  was  one  of  the  most 
difficult  problems  that  confronted  the  framers  of  the 
Federal  Constitution,  and  one  without  precedent  in  the 
world's  history.  The  problem  occasioned  much  discus- 
sion, and  was  really  left  unsettled — a  general  power  being 
given  to  the  national  legislature,  or  Congress,  "  to  lay  and 
268 


STATE   AND   NATIONAL  TAXATION.  269 

collect  taxes,  duties,  imposts,  and  excises,"  with  the 
limitation  that  "  all  duties,  imposts,  and  excises  shall  be 
uniform  throughout  the  United  States  ";  that  "  no  capi- 
tation or  other  direct  tax  shall  be  laid  unless  in  pro- 
portion to  the  census  ";  that  "  no  State  shall,  without  the 
consent  of  Congress,  lay  any  imposts  or  duties  on  im- 
ports or  exports,"  and  that  no  tax  or  duty  shall  under  any 
circumstances  be  laid  on  articles  exported  from  any  State. 
Under  such  a  loose  and  indefinite  condition  of  things, 
a  conflict  of  laws  and  of  jurisdictions  was  inevitable,  giv- 
ing rise  to  controversies  whose  determination  was  really 
vital  to  the  integrity  and  efficiency  of  the  Federal  Con- 
stitution. But  happily,  owing  to  the  firmness  and  wisdom 
of  the  national  tribunal  (United  States  Supreme  Court) 
before  which  these  questions  have  been  brought  for  ad- 
judication, most  of  the  difficulties  which  once  seemed  so 
formidable  have  been  overcome,  and  are  now  mainly  in- 
teresting as  matter  of  history. 

One  of  the  earliest  and  most  celebrated  of  these  con- 
troversies culminated,  as  it  were,  in  a  case  or  suit  known 
as  McCulloch  vs.  Maryland,  which  came  before  the  Su- 
preme Court  of  the  United  States  and  was  decided  in 
1819,  under  the  following  circumstances:  Congress  in  1815 
chartered  a  national  (United  States)  bank,  which  as  a 
legitimate  and  authorized  feature  of  its  organization  estab- 
lished branches  in  the  States,  with  power  to  issue  circulat- 
ing notes.  This  measure  proved  unpopular  in  many  of 
the  States,  and  attempts  were  made  by  them  to  resist  the 
various  operations  of  this  banking  institution  within  their 
territory.  Foremost  among  these  was  the  State  of  Mary- 
land, which,  through  an  enactment  of  its  Legislature,  re- 
quired every  bank  doing  business  in  the  State,  and  not 
chartered  by  the  State,  either  to  pay  a  stamp  duty  on 
every  note  issued,  or  pay  a  tax  of  $1,500  in  gross  per  an- 
num, and  in  addition  imposed  certain  penalties  on  all  the 
officers  of  a  bank  violating  the  law,  and  upon  every  per- 
son who  had  any  agency  in  circulating  such  notes.  Con- 
temporaneously, also,  the  State  of  Ohio  imposed  an  annual 
tax  of  $50,000  upon  the  branch  bank  of  the  United  States 
established  in  that  State. 

The  validity  of  the  Maryland  statute  having  been 
affirmed  by  the  Court  of  Appeals,  the  highest  court  of 


270    THE  THEORY  AND   PRACTICE  OF  TAXATION. 

law  in  that  State,  and  an  action  having  been  brought  for 
the  enforcement  of  a  penalty  against  an  official  of  the 
Maryland  branch  (United  States)  bank  for  a  violation  of 
the  State  law,  the  defendant — one  McCulloch,  the  cashier 
of  the  said  branch  bank — thereupon  brought  the  case  (as 
involving  an  interpretation  of  the  Federal  Constitution) 
by  writ  of  error  before  the  United  States  Supreme  Court. 
A  little  reflection  will  abundantly  satisfy  the  reader 
that  the  question  involved  in  this  procedure  was  of  the 
greatest  importance,  inasmuch  as  it  necessitated  certain 
rational  and  fundamental  conclusions  that  had  not  pre- 
viously been  authoritatively  reached  and  popularly  ac- 
cepted, respecting  the  nature  and  power  of  the  Federal 
Government;  and  a  definite  interpretation  of  the  letter 
and  spirit  of  certain  features  of  the  Federal  Constitution 
which,  as  the  action  of  the  States  before  noticed  demon- 
strated, had,  to  say  the  least,  been  heretofore  regarded  as 
ambiguous.  So  that,  whatever  might  be  the  decision  of  the 
court,  the  consequences  were  certain  to  be  most  momen- 
tous. Thus,  if  the  right  of  a  State  to  tax — which  prac- 
tically involved  the  right  to  destroy  the  instrumentalities 
of  the  Federal  Government,  was  denied,  then  such  Gov- 
ernment rested  on  sure  foundations.  If,  on  the  other 
hand,  to  quote  the  language  of  the  court,  "  the  right  of 
the  State  to  tax  the  means  employed  by  the  General  Gov- 
ernment be  conceded,  the  declaration  that  the  Constitu- 
tion and  laws  made  in  pursuance  thereof  shall  be  the 
supreme  law  of  the  land  is  an  empty  and  unmeaning  dec- 
laration," and  the  United  States,  in  the  sense  of  a  nation, 
would  practically  cease  to  exist.  Taking  also  into  account 
the  increase  in  the  number  of  States  that  would  have  to 
harmonize  if  anything  was  accomplished  in  a  new  consti- 
tutional convention,  and  the  number  of  new  antagonizing 
elements  on  the  part  of  the  several  States  that  had  arisen 
— the  vexing  question  of  the  future  tolerance  and  ex- 
tension of  slavery,  which  finally  eventuated  in  civil  war, 
the  power  of  Congress  to  create  banking  corporations,  and 
the  right  of  the  Legislatures  of  the  States  to  subject  them 
to  taxation,  and  the  like — and  it  is  very  doubtful  whether 
any  new  Federal  Constitution  could  have  been  established. 
As  a  matter  of  fact,  the  Federal  Government  and  the 
union  of  the  States  came  nearer  disruption  and  dissolution 


Mcculloch  vubsus  Maryland.  2YI 

in  1819  than  when,  forty-two  years  subsequently,  Fort 
Sumter  was  fired  upon  and  the  flag  of  the  Union  forcibly 
hauled  down — which  latter  events  are  generally  regarded 
as  constituting  the  leading  features  of  the  constitutional 
history  of  the  United  States.  And  this  situation  was  so 
well  recognized  by  Chief-Justice  Marshall  (to  whom  the 
nation  is  indebted  for  its  preservation  to  a  greater  degree 
than  has  been  generally  recognized)  as  to  draw  from  him 
the  remark,  preliminary  to  announcing  the  decision  of  the 
court,  that  "■  no  tribunal  could  approach  such  a  question 
as  was  involved  without  a  deep  sense  of  its  importance 
and  of  the  awful  responsibility  involved  in  the  decision."  * 

The  decision  of  the  court  was  unanimous  that  "  the 
States  have  no  power,  by  taxation  or  otherwise,  to  retard, 
impede,  burden,  or  in  any  manner  control  the  operation 
of  the  constitutional  laws  enacted  by  Congress  to  carry 
into  execution  the  powers  vested  in  the  General  Govern- 
ment; and  that  the  law  passed  by  the  Legislature  of  Mary- 
land imposing  a  tax  on  the  Bank  of  the  United  States  is 
unconstitutional  and  void." 

"  If  we  apply,"  said  the  Chief  Justice,  "  the  principle 
for  which  the  State  of  Maryland  contends  to  the  Consti- 
tution generally,  we  shall  find  it  capable  of  changing 
totally  the  character  of  that  instrument.  We  shall  find  it 
capable  of  arresting  all  the  measures  of  the  Government, 
and  of  prostrating  it  at  the  foot  of  the  States.  The 
American  people  have  declared  their  Constitution  and 
the  laws  made  in  pursuance  thereof  to  be  supreme;  but 
this  principle  would  transfer  the  supremacy,  in  fact,  to 
the  States.  If  the  States  may  tax  one  instrument  em- 
ployed by  the  Government  in  the  execution  of  its  powers, 
they  may  tax  any  and  every  other  instrument.  They  may 
tax  the  mail;  they  may  tax  patent  rights;  they  may  tax  the 
papers  of  the  custom  house;  they  may  tax  judicial  process; 
they  may  tax  all  the  means  employed  by  the  Government, 
to  an  excess  which  would  defeat  all  the  ends  of  govern- 
ment.    This  was  not  intended  by  the  American  people. 

*  "  No  more  impressive  words  are  to  be  found  in  any  English 
or  American  adjudication  than  those  uttered  by  Chief-Justice 
Marshall  as  a  preamble  to  the  judgment  in  this  most  interesting 
and  important  case." — Francis  HiJIard,  The  Law  of  Taxation. 


272    THE   THEORY  AND   PRACTICE  OP  TAXATION. 

They  did  not  design  to  make  their  Government  dependent 
on  the  States." 

The  court,  however,  held  that  its  decision  did  not  de- 
prive "  the  States  of  any  resources  which  they  originally 
possessed.  It  does  not  extend  to  a  tax  paid  by  the  real 
property  of  the  bank,  in  common  with  the  other  real 
property  within  the  State,  nor  to  a  tax  imposed  on  the 
interest  which  the  citizens  of  Maryland  may  hold  in  this 
institution,  in  common  with  other  property  of  the  same 
description  throughout  the  State.  But  this  is  a  tax  on 
the  operation  of  the  bank,  and  is  consequently  a  tax  on 
the  operation  of  an  instrument  employed  by  the  Govern- 
ment of  the  Union  to  carry  its  powers  into  execution. 
Such  a  tax  must  be  unconstitutional."  * 

The  successful  counsel  in  this  case  were  Daniel  Web- 
ster and  William  Pinkney,  and  in  the  course  of  his  decision 
the  Chief  Justice  complimented  the  counsel  on  both  sides 
as  maintaining  the  affirmative  and  negative  with  a  splen- 

*  The  following  additional  extracts  from  the  decision  of  the 
court  in  this  celebrated  case  will  help  to  a  further  elucidation 
of  its  involved  subject-matters: 

"  In  the  case  now  to  be  determined,"  said  the  chief  justice, 
"  the  defendant,  a  sovereign  State,  denies  the  obligation  of  a  law 
enacted  by  the  Legislature  of  the  Union;  and  the  plaintiff,  on 
his  part,  contests  the  validity  of  an  act  which  has  been  passed 
by  the  Legislature  of  that  State.  The  Constitution  of  our  coun- 
try, in  its  most  interesting  and  vital  parts,  is  to  be  considered; 
the  conflicting  powers  of  the  Government  of  the  Union  and  of  its 
members  are  to  be  discussed;  and  an  opinion  given  which  may 
essentially  influence  the  great  operations  of  the  Government.  No 
tribunal  can  approach  such  a  question  witliout  a  deep  sense  of  its 
importance  and  of  the  awful  responsibility  involved  in  its  decision. 
But  it  must  be  decided  peacefully,  or  remain  a  source  of  hostile 
legislation — perhaps  of  hostility  of  a  still  more  serious  nature; 
and  if  it  is  to  be  so  decided,  by  this  tribunal  alone  can  the  de- 
cision be  made.  On  the  Supreme  Court  of  the  United  States  has 
the  Constitution  of  our  country  devolved  this  important  duty. 
The  sovereignty  of  a  State  extends  to  everything  wliich  exists 
by  its  own  authority,  or  is  introduced  by  its  permission;  but  it 
does  not  extend  to  those  means  which  are  employed  by  Congress 
to  carry  into  execution  powers  conferred  on  that  body  by  the 
people  of  the  L'nited  States.  We  think  it  demonstrable  that  it 
does  not.  These  powers  are  not  given  by  the  people  of  a  single 
State;  they  are  given  by  the  people  of  the  United  States  to  a 
Government  whose  laws,  made  in  pursuance  of  the  Constitution, 
are  declared  to  be  supreme.  Consequently,  the  people  of  a  single 
State  can  not  confer  a  sovereignty  which  will  extend  over  them." 


TAXATION  OP  NATIONAL  INSTRUMENTS.         2Y3 

dour  of  eloquence  and  a  strength  of  argument  seldom,  if 
ever,  surpassed. 

It  may  also  be  added  that  no  decision  of  the  United 
States  Supreme  Court,  or  of  any  other  court  in  the  United 
States,  has  since  impugned  the  correctness  of  the  prin- 
ciple upon  which  the  case  of  McCulloch  vs.  Maryland  was 
decided.  A  brief  notice,  however,  of  subsequent  judicial 
proceedings  is  interesting  and  necessary  to  complete  the 
history  of  this  celebrated  case. 

Thus,  the  Legislature  of  Ohio  having,  as  before  stated, 
imposed  an  annual  tax  of  $50,000  upon  the  branch  of  the 
Bank  of  the  United  States  established  in  that  State  before 
the  decision  in  the  McCulloch  case,  the  State  officers,  even 
after  the  decision,  proceeded  to  levy  and  collect  the  tax. 
Thereupon  the  case  was  again  brought  before  the  United 
States  Supreme  Court  on  an  application  for  injunction,  and 
was  reargued,  with  reliance  upon  the  point  that  the  bank 
was  a  mere  private  corporation,  whose  chief  object  was  indi- 
vidual trade  or  profit.  The  court,  however,  at  once  re- 
affirmed its  former  judgment,  and  held  that  the  bank 
was  a  public  corporation,  created  for  national  purposes, 
and  an  instrument  for  carrying  into  effect  the  national 
powers.  At  the  same  time  the  opinion  of  the  court  in 
the  McCulloch  case,  that  its  decision  "  did  not  deprive  a 
State  of  any  resources  it  originally  possessed,"  remained 
unaffected. 

Subsequently  a  case  came  before  the  United  States 
Supreme  Court  (Weston  vs.  the  City  of  Charleston,  S.  C.)  * 
in  which  the  question  involved  was  the  right  of  a  State 
to  tax  stock  issued  for  loans  made  to  the  United  States, 
whether  on  the  stock,  eo  nomine  or  included  in  the  ag- 
gregate of  the  tax-payers'  property  to  be  valued  at  what 
it  was  worth.  The  court,  by  Chief-Justice  Marshall,  held 
"  that  a  tax  on  stock  of  the  United  States,  held  hij  an  in- 
dividual citizen  of  a  State,  is  a  tax  on  the  potver  to  borrow 
money  on  the  credit  of  the  United  States,  and  can  not  be 
levied  on  the  authority  of  a  State  consistently  with  the  Con- 
stitution," and,  further,  "  that  if  the  right  to  impose  a  tax 
exists,  it  is  a  right  which  in  its  nature  acknowledges  no 
limits.     It  may  be  carried  to  any  extent  ivithin  the  juris- 

*  2  Peters,  449. 


274    THE  THEORY  AND   PRACTICE  OF  TAXATION. 

diction  of  the  State  or  corporation  which  imposes  it,  which 
the  will  of  such  State  or  corporation  may  prescribe.  Can 
anything,"  continued  the  Chief  Justice,  "  be  more  dan- 
gerous or  more  injurious  than  the  admission  of  a  prin- 
ciple which  authorizes  every  State  and  every  corporation 
in  the  Union  which  possesses  the  right  of  taxation  to 
burden  the  exercise  of  this  (borrowing)  power  at  their  dis- 
cretion?" A  tax  on  the  stock  or  bonds  of  a  State  is 
therefore  a  tax  on  the  borrowing  power  of  such  State. 

The  court  further  held  that  a  tax  of  this  description 
was  a  tax  upon  contracts,*  using  the  following  language : 
"  Congress  has  power  to  borrow  money  on  the  credit  of 
the  United  States.  The  stock  it  issues  is  evidence  of  a 
debt  created  by  the  exercise  of  this  power.  The  tax  in 
question  is  a  tax  upon  the  contract  subsisting  between  the 
Government  and  the  individual.  It  bears  directly  upon  the 
contract.  While  subsisting  and  in  full  force,  the  power 
operates  upon  the  contract  the  instant  it  is  framed,  and 
must  imply  a  right  to  aifect  that  contract.  If  the  States 
and  corporations  throughout  the  Union  possess  the  power 
to  tax  a  contract  for  the  loan  of  money,  what  shall  arrest 
the  principle  in  its  application  to  every  other  contract? 

*  What  interpretation  the  Supreme  Court  puts  upon  the  word 
"  contract,"  as  found  in  that  clause  of  the  Constitution  of  the 
United  States  which  provides  "  that  no  State  shall  pass  any  law 
impairing  the  obligations  of  contracts,"  is  made  clear  by  the  fol- 
lowing language  employed  by  Chief-Justice  ^Marshall  in  giving 
the  opinion  of  the  court  in  the  celebrated  case  of  the  Trustees 
of  Dartmouth  College  vs.  Woodward :  "  The  term  contract  must 
be  understood  as  intended  to  guard  against  a  power  of  at  least 
doubtful  utility,  the  abuse  of  which  had  been  extensively  felt,  and 
to  restrain  the  Legislature  in  future  from  violating  the  right  to 
property ;  that  anterior  to  the  formation  of  the  Constitution  a 
course  of  legislation  had  prevailed  in  many  if  not  all  of  the  States 
which  weakened  the  confidence  of  man  in  man,  and  embarrassed 
all  transactions  between  individuals,  by  dispensing  Avith  a  faith- 
ful performance  of  engagements.  To  correct  this  mischief  by  re- 
straining the  power  which  produced  it,  the  State  Legislatures  were 
forbidden  '  to  pass  any  law  impairing  the  obligation  of  contracts ' — 
that  is,  of  contracts  respecting  property,  under  which  some  indi- 
vidual could  claim  a  right  to  something  beneficial  to  himself;  and 
that,  since  the  clause  in  the  Constitution  must  in  construction 
receive  some  limitation,  it  may  be  confined,  and  ought  to  be  con- 
fined, to  cases  of  this  description — to  cases  within  the  mischief  it 
was  intended  to  remedy." 


TAX  ON  INTERSTATE  COMMERCE.  275 

What  measure  can  Government  adopt  which  will  not  be 
exposed  to  its  influence?  The  right  to  tax  the  contract 
to  any  extent,  when  made,  must  operate  upon  the  power 
to  borrow  before  it  is  exercised,  and  have  a  sensible  influ- 
ence on  the  contract.  The  extent  of  this  influence  de- 
pends on  the  will  of  a  distinct  government.  To  any  ex- 
tent, however  inconsiderable,  it  is  a  burden  on  the  opera- 
tions of  government.  It  may  be  carried  to  an  extent  which 
shall  arrest  them  entirely." 

As  a  sequence  to  these  decisions  of  the  United  States 
Supreme  Court,  not  only  has  the  general  principle  that  no 
State  of  the  Federal  Union  can  impose  any  tax  upon  any 
agency  of  the  Federal  Government — as  its  mails,  its  build- 
ings, its  lands,  its  ships,  its  money,  and  the  like — come 
to  be  universally  recognised  as  in  the  nature  of  an  un- 
questionable law  of  the  land,  but  the  question  of  the  appli- 
cation of  the  principle  in  respect  to  many  cases  to  which 
some  latitude  of  opinion  was  legitimate,  has  been  specially 
and  definitely  determined.  Thus,  for  example,  it  has  been 
established,  that  a  State  can  not  impose  license  taxes  upon 
persons  passing  through  or  coming  into  it  merely  for  a 
temporary  purpose,  especially  if  connected  with  interstate 
commerce ;  a  State,  furthermore,  can  not  enact  any  law 
or  establish  any  regulation  affecting  interstate  commerce, 
inasmuch  as  the  same  would  be  an  unauthorized  in- 
terference with  the  power  given  to  Congress  on  the  sub- 
ject. Interstate  commerce  also  can  not  be  taxed  at  all 
by  a  State  statute,  even  though  the  same  amount  of  tax 
should  be  laid  on  commerce  which  is  carried  on  solely 
within  the  State;  'and  the  negotiation  of  sales  of  goods, 
which  are  in  another  State,  for  the  purpose  of  introducing 
them  into  the  vState  into  which  said  negotiation  is  made, 
has  been  held  to  be  interstate  commerce.  A  tax  levied  by 
the  State  of  Michigan  of  one  cent  and  a  half  a  ton  on 
iron  ores,  if  taken  out  of  the  State  for  smelting,  while 
exempt  if  smelted  within  the  State,  was  held  by  the 
United  States  Supreme  Court  to  be  a  tax  on  commerce  and 
therefore  void. 

A  State  statute  which  levies  a  tax  upon  the  gross  re- 
ceipts of  railroads  for  the  carriage  of  freights  and  pas- 
sengers into,  out  of,  or  through  a  State  has  been  held  to 
be  a  tax  upon  commerce  between  the  States,  and  therefore 


276    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

void.  Under  the  provision  of  the  Federal  Constitution 
that  "no  State  shall,  without  the  consent  of  Congress, 
lay  any  imposts  or  duties  on  imports  or  exports,  except 
what  may  be  absolutely  necessary  for  executing  its  inspec- 
tion laws,"  some  difficulty  has  been  experienced  in  indicat- 
ing with  sufficient  accuracy  for  practical  purposes,  the 
point  of  time  at  which  articles  brought  into  the  country 
from  abroad  cease  to  be  regarded  as  imports  in  the  sense 
of  constitutional  protection,  and  become  liable  to  State 
taxation.  But  it  has  been  held  by  the  United  States  Su- 
preme Court  that  where  the  importer  has  so  acted  upon 
the  thing  imported  that  it  has  become  incorporated  and 
mixed  up  with  the  mass  of  property  in  the  country,  it 
has  lost  its  distinctive  character  as  an  import,  and  be- 
come subject  to  the  taxing  power  of  the  State;  but  while 
remaining  the  property  of  the  importer,  in  his  warehouse, 
in  the  original  form  or  package  in  which  it  was  imported, 
a  tax  upon  it  is  too  plainly  a  duty  upon  imports  to  escape 
the  prohibition  in  the  Constitution.  The  deductions  from 
a  contrary  rule  would  be  manifestly  as  follows:  "  No  goods 
would  be  imported  if  none  could  be  sold.  The  same  power 
that  imposes  a  light  duty  can  impose  one  that  amounts  to 
prohibition.  A  duty  on  imports  is  a  tax  on  the  article, 
which  is  paid  by  the  consumer.  The  great  importing 
States  would  thus  levy  a  tax  on  the  nonimporting  States," 
as  was  done  under  articles  of  the  Confederation  prior  to 
the  adoption  of  the  Federal  Constitution.  "  This  would 
necessarily  produce  countervailing  measures." 

In  the  case  of  Brown  vs.  Maryland,  where  the  latter 
State,  for  revenue  purposes,  required  a  merchant  to  take 
a  license  and  pay  fifty  dollars  before  he  should  be  al- 
lowed to  sell  a  package  of  imported  goods,  the  court  (by 
Chief -Justice  Marshall)  held  that  this  tax,  though  indirect 
in  form  (i.  e.,  a  license  on  the  person  of  the  importer),  was 
in  fact  equivalent  to  a  duty  on  imports,  and  therefore 
illegal;  and  that  the  right  to  import  carried  with  it  the 
right  to  sell.* 

*  As  an  extension  of  the  history  of  this  ease  the  following  futile 
criticism  of  a  former  chairman  of  the  Board  of  Assessors  of  the 
City  of  Boston  (report  for  1871)  is  pertinent:  "There  is  certainly 
a  broad  distinction  between  the  prohibition  of  the  right  to  sell 
an  imported  article  and  the  right  to  tax  the  same  as  property. 


LIMITATIONS  ON   FEDERAL  TAXATION.  277 

This  decision  has  been  carefully  recognised  by  the 
authorities  of  the  several  States  in  dealing  with  imported 
liquors  under  local  license  acts.  "  Under  its  police  powers 
there  is  no  constitutional  restraint  on  a  State  prohibiting 
the  retail  and  internal  traffic  in  ardent  spirits.  But  a 
State  is  at  the  same  time  bound  to  receive  and  permit  the 
sale  by  the  importer  of  any  article  of  merchandise  which 
Congress  authorizes  to  be  imported,  but  it  is  not  bound  to 
abstain  from  the  passage  of  laws  which  it  deems  proper  to 
guard  the  health  or  morals  of  its  citizens,  although  the 
effect  of  such  laws  may  be  to  discourage  importation,  and 
diminish  the  profits  of  the  importer  and  the  revenue  of 
the  General  Government." — Burroughs,  On  Taxation. 

Limitations  of  the  Taxing  Power  of  the  Federal 
Government. — If  the  States  can  not  tax  the  agencies  or 
instrumentalities  by  which  the  Federal  Government  per- 
forms its  functions,  it  would  seem  clearly  to  follow  that 
for  like  reasons  the  Federal  Government  can  not  tax  State 
instrumentalities  or  agencies. 

That  such  reciprocal  limitations  are  natural  and  neces- 
sary, and  exist  by  implication,  not  only  in  the  Constitu- 
tion of  the  United  States,  but  also  in  the  very  structure 
of  the  Federal  Union,  must  be  evident,  when  one  reflects 
that  otherwise  the  Federal  Government  on  the  one  hand, 
and  the  governments  of  the  States  on  the  other,  might  im- 
pose taxation  to  an  extent  that  would  cripple,  if  not  wholly 
defeat,  the  operations  of  the  two  authorities,  each  within 
its  respective  and  proper  sphere  of  action.  Or,  in  other 
words,  if  the  Federal  and  the  State  governments  had  each 
unrestricted  power  to  tax,  or,  what  is  equivalent,  "  the 
power  to  destroy,"  they  might,  and  as  experience  proves 

The  decision  of  the  United  States  Court  was  to  the  effect  that  the 
State  could  not  enact  a  law  that  would  prevent  the  sale  of  such 
property,  and  did  not  touch  the  question  of  the  right  to  tax.  In 
a  recent  decision  of  the  Supreme  Judicial  Court  of  Massachusetts 
(Dunbar  vs.  Boston,  101  Mass.,  317),  where  the  question  was 
raised  that  the  Commonwealth  could  not  tax  a  stock  of  liquors, 
the  sale  of  which,  by  her  laws,  she  had  declared  illegal,  the  court 
sustained  the  tax,  upon  the  ground  that  the  case  did  not  show 
that  the  goods  could  not  be  legally  sold.  As  the  law  stood  at 
the  time  the  decision  was  given,  but  one  class  of  the  plaintiff's 
stock  of  intoxicating  liquors  could  legally  be  sold;  and  that  was 
his  importations  in  the  original  packages." 


278    THE  THEORY  AND   PRACTICE  OF  TAXATION. 

they  probably  would,  effectually  destroy  efficient  govern- 
ment in  both  cases,  and  the  necessity  and  validity  of  such 
reciprocal  limitations  have  been  recognised  and  enforced 
by  the  courts  of  the  United  States  whenever  this  question 
has  been  brought  before  them  for  adjudication.  Thus,  in 
the  case  of  Day  vs.  Buffington,  United  States  Circuit 
Court,  Massachusetts  District,  it  was  held  that  the  salary 
of  a  State  official,  in  this  particular  instance  a  judge  of 
probate,  could  not  be  legally  subjected  to  assessment  for 
an  income  tax,  under  the  laws  of  the  United  States  au- 
thorizing the  assessment  and  collection  of  internal  rev- 
enue; and  Congress,  some  years  since,  acting  under  the 
advice  of  the  United  States  Supreme  Court,  repealed  so 
much  of  an  internal  revenue  act  as  previously  required  the 
affixing  of  stamps  to  State  processes,  warrants,  commis- 
sions, etc.  In  the  case  of  Warren  vs.  Paul,  22  Ind.,  279, 
the  court  used  the  following  language:  "  The  Federal  Gov- 
ernment may  tax  the  Governor  of  a  State  or  the  clerk  of  a 
State  court  and  his  transactions  as  an  individual,  but  not 
as  a  State  officer.  This  must  be  so,  or  the  State  may  be 
annihilated  at  the  pleasure  of  the  Federal  Government. 
The  Federal  Government  may,  perhaps,  take  by  taxation 
most  of  the  property  in  a  State  if  exigencies  require,  but 
it  has  not  a  right  by  direct  or  indirect  means  to  annihilate 
the  functions  of  the  State  government." 

In  a  recent  debate  in  the  United  States  Senate  on  a 
proposition  to  appropriate  public  money  for  the  purpose 
of  establishing  and  maintaining  higher  institutions  of 
learning  in  the  District  of  Columbia  than  were  offered  by 
its  common  schools,  a  leading  Senator  (John  Sherman), 
others  concurring,  is  reported  as  expressing  himself  as 
follows: 

"  I  concur  entirely  in  the  opinion  expressed  by  the 
Senator  from  Rhode  Island  (Mr.  Aldrich)  that  we  have  no 
right  to  use  the  public  money  to  establish  business  high 
schools.  It  is  the  duty  of  every  community  to  give  the 
children  who  are  growing  up  a  good  common-school  educa- 
tion, which  covers  a  pretty  wide  range  now,  according  to 
the  general  ideas  of  our  people,  and  there  the  duty  should 
stop.  Money  for  this  pur})ose  should  be  contributed  by 
private  persons.  We  do  our  duty  when  we  furnish  a  fair, 
common-school  education  to  the  children  that  are  grow- 


TAXES  ON  STATE  INSTRUMENTS.  279 

ing  up  among  us '' — i.  e.,  in  the  District  of  Columbia — 
"  and  that  is  all  we  ought  to  contribute." 

Can  Congeess  authorize  the  States  to  tax  Na- 
tional Instrumentalities? — In  the  popular  discussions 
which  have  occurred  in  recent  years  in  reference  to  the 
taxing  of  United  States  securities,  the  position  has  been 
not  infrequently  taken  that  it  would  have  been  Just  and 
expedient  on  the  part  of  Congress,  at  the  time  of  the 
creation  of  the  present  national  debt,  to  have  allowed 
the  separate  States  to  tax  the  evidences  of  such  debt  (i.  e., 
the  bonds)  in  the  possession  of  their  citizens,  subject  to  a 
limitation  that  the  same  should  not  be  taxed  at  any  differ- 
ent rate  than  other  "  moneyed  capital."  A  full  considera- 
tion of  the  whole  subject  will,  however,  suggest  a  doubt 
whether  Congress  possesses- the  power  to  grant  any  such 
authorization,  inasmuch  as  to  have  done  so  would  have 
been  equivalent  to  authorizing  the  States  to  do  an  act 
which  in  itself  is  unconstitutional — a  thing  which  it  is  self- 
evident  that  Congress  can  not  do.  Thus  "  the  power  to 
tax,"  says  Chief-Justice  Marshall,  in  giving  the  opinion 
of  the  Supreme  Court  denying  the  right  of  Maryland  to 
tax  the  Bank  of  the  United  States,  "involves  the  power  to 
destroy";  and  in  the  case  of  Weston  vs.  The  City  of 
Charleston,  the  same  court,  by  the  same  eminent  author- 
ity, held  further,  as  before  shown,  "  that  if  the  right  to 
impose  a  tax  exists,  it  is  a  right  which  in  its  nature  acl-nowl- 
edges  no  limits."  For  Congress,  therefore,  to  have  author- 
ized the  States  to  tax  "  national  agencies  "  would  have 
been  equivalent  to  authorizing  the  exercise  of  a  right  to 
destroy;  which  right,  the  Supreme  Court  has  held,  can  not, 
from  its  nature,  when  once  existing,  be  limited. 

Alienation  of  the  Taxing  Power. — The  application 
of  the  decision  by  the  United  States  Supreme  Court  in 
the  celebrated  Dartmouth  College  case,  has  resulted  in  the 
general  acceptance  of  the  legal  principle  that  a  charter  of 
incorporation  by  a  State  is  a  contract  between  the  State 
and  the  incorporators;  and  if  such  charter  contains  a  clause 
exempting  the  incorporators  entirely  from  taxation,  or  for 
a  definite  period,  a  subsequent  Legislature  can  not  repeal 
the  clause  of  exemption.  Within  a  recent  period  the  in- 
terest involved  in  this  question  has  become  so  great,  and 
the  power  of  wealthy  corporations  who  claim  the  benefit 


280    THE  THEORY   AND  PRACTICE   OF  TAXATION. 

of  this  principle  is  so  extensive,  that  it  is  desirable  to 
briefly  call  attention  to  views  of  dissenting  legal  authorities 
and  dissenting  State  courts. 

"  It  is  claimed  that  the  power  of  taxation  is  one  of  the 
sovereign  powers  of  the  State  necessary  to  its  continued 
existence,  and  that  it  was  never  contemplated,  when  the 
people  through  their  Constitutions  delegated  to  their  rep- 
resentatives in  Legislature  assembled  the  power  to  make 
laws  for  the  good  of  the  people  of  the  State,  that  this 
grant  of  legisaltive  power  carried  with  it  the  right  to  barter 
away  with  private  corporations  one  of  the  essential  pre- 
rogatives of  the  Government,  the  verv  life-blood  of  the 
State."  *' 

How  one  of  the  States  of  the  Union — Connecticut — 
has  recently  thrown  away  valuable  public  franchises  is  thus 
graphically  described  by  one  of  the  leading  and  authorita- 
tive newspapers  of  New  England — i.  e.,  the  Springfield 
Eepublican.  We  have  here  the  astonishing  fact  that  over 
seventy  per  cent  of  the  stock  capital  of  twenty-six  mo- 
nopoly electric  or  "  trolley "  companies  operated  in  that 
State  has  been  issued  for  something  other  than  money, 
(cash)  paid  in,  and  hence  may  be  said  to  represent  nothing 
but  what  is  popularly  characterized  as  "  water."  The 
bonded  debt  of  these  roads  amounts  to  $8,690,100,  or  over 
three  times  the  amount  of  their  cash  stock — i.  e.,  $2,671,- 
240.  This  bonded  debt,  standing  in  comparison  with  a 
total  stock  issue,  strikingly  illustrates  what  has  taken 
place:  first,  a  gratuitous  grant  or  franchise;  second,  an 
issue  of  bonds  thereon  to  build  the  roads;  third,  a  share 
capital,  the  product  of  the  printing  press,  and  represent- 
ing no  value  whatever  except  as  an  instrumentality  for 
obtaining  extra  profits  and  exceptional  legislation  through 
its  distribution. 

"  This  watered  capitalization  will  in  time,  of  course, 
pass  into  innocent  hands,  and  the  '  rights '  of  the  monop- 
olies in  the  matter  of  charges  will  all  be  gauged  by  the 
yearly  revenue  in  its  relation  to  this  totality  of  nominal 
capital.  The  stock  waterers  will  have  sold  their  water 
at  handsome  figures  and  made  off,  and  the  purchasers  of 

*  Biirroufjhs  On  Taxation,  from  Avhich   authority  the  writer  is 
mainly  indebted  in  his  presentation  of  this  important  subject. 


ALIENATION   OF   TAXING   POWER.  281 

the  water  must  henceforward,  of  course,  be  considered 
legitimate  investors  whose  holdings  are  entitled  to  full 
consideration;  and  only  until  monopoly  charges  suffice  to 
pay  eight  and  ten  per  cent  on  all  capital,  watered  or  other- 
wise, will  it  be  safe  for  any  community  to  demand  a  re- 
duction of  charges  without  Ijringing  upon  itself  the  charge 
of  being  favourable  to  anarchy  and  confiscation. 

"  The  people  of  Connecticut  are  preparing  the  way  to 
pay  handsomely  for  their  electric  transportation.  The 
penalty  of  present  neglect  to  guard  and  restrict  closely  the 
capitalization  of  these  monopolies  will  fall  in  ugly  force 
upon  this  and  future  generations;  and  when  the  time  is 
ripe  for  municipal  or  State  assumption  of  the  monopolies, 
as  may  some  time  happen,  the  people  will  have  the  pleas- 
ure, no  doubt,  of  paying  more  than  face  value  for  the 
water  now  so  freely  allowed  to  issue."  * 

On  this  subject  the  late  Chief-Justice  Taney  expressed 
his  views  as  follows,  in  a  case  that  came  up  before  the 
United  States  Supreme  Court  in  1853:  "The  powers  of 
sovereignty  confided  to  the  legislative  body  of  a  State  are 
undoubtedly  a  trust  committed  to  them  to  be  executed  to 
the  best  of  their  judgment  for  the  public  good;  and  no  one 
Legislature  can  by  its  own  act  disarm  its  successors  of  any 
of  its  powers  or  rights  of  sovereignty  confided  by  the  peo- 
ple to  the  legislative  body,  unless  they  are  authorized  to 
do  so  by  the  Constitution  under  which  they  are  elected. 
They  can  not,  therefore,  by  contract,  deprive  a  future 
Legislature  of  the  power  of  imposing  any  tax  it  may  deem 
necessary  for  the  public  service,  or  of  exercising  any  other 
act  of  sovereignty  confided  to  the  legislative  body,  unless 
the  power  to  make  such  contract  is  conferred  upon  them 
by  the  Constitution  of  the  State.  And  in  every  contro- 
versy on  this  subject  the  question  must  depend  on  the  Con- 
stitution of  the  State,  and  the  extent  of  the  power  thereby 
conferred  on  the  legislative  body." 

The  subject  again  came  up  before  the  United  States 
Supreme  Court  in  1869,  1871,  and  1872,  when  the  ques- 
tion at  each  time  was  treated  as  res  adjudicata  (definitely 
settled).  In  the  first  of  these  instances  Justice  Miller 
thus  expressed  his  views :  "  We  do  not  believe  that  any 

*  On  a  franchise  tax,  see  the  last  chapter  in  this  volume. 
19 


282    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

legislative  body,  sitting  under  a  State  Constitution  of  the 
usual  character,  has  a  right  to  sell,  to  give,  or  bargain 
away  forever  the  taxing  power  of  the  State.  This  is  a 
power  which,  in  modern  political  societies,  is  absolutely 
necessary  to  the  continued  existence  of  every  such  society. 
While  under  such  forms  of  government  the  ancient  chiefs 
or  heads  of  the  government  might  carry  it  on  by  revenues 
owned  by  them  personally  and  by  the  exaction  of  per- 
sonal service  from  their  subjects,  no  civilized  Government 
has  ever  existed  that  did  not  rely  upon  taxation  in  some 
form  for  the  continuance  of  that  existence.  To  hold,  then, 
that  any  one  of  the  annual  Legislatures  can,  by  contract, 
deprive  the  State  forever  of  the  power  of  taxation  is  to 
hold  that  they  can  destroy  the  Government  they  are  ap- 
pointed to  serve,  and  that  their  action  in  that  regard  is 
strictly  lawful.  The  result  of  such  a  principle,  under  the 
growing  tendency  to  special  and  partial  legislation,  would 
be  to  exempt  the  rich  from  taxation  and  cast  all  the 
burden  of  the  support  of  government  on  those  who  are  too 
poor  or  too  honest  to  purchase  such  immunity." 

Like  dissenting  views  have  also  found  expression  in 
various  State  courts.  Chief-Justice  Beasley,  of  New  Jer- 
sey, for  example,  in  commenting  on  the  proposition  that 
a  charter  of  incorporation  is  a  contract,  says:  "  The  entire 
contract  on  the  part  of  a  State,  implied  in  such  cases,  is  the 
supposed  legislative  agreement  not  to  alter  or  recall  the 
privilege  granted.  No  other  stipulation  on  the  part  of  the 
State  was  ever  suggested  to  exist,  and  it  was  the  imagined 
existence  of  such  stipulation  alone  which  converted  what 
else,  in  all  its  essential  qualities  as  well  as  in  its  form,  was 
an  act  of  legislation,  into  a  contract  on  the  part  of  the  com- 
munity with  the  corporators.  Without  such  stipulation, 
having  an  obligatory  force,  I  am  wholly  unable  to  conceive 
the  ground  of  difference  between  the  charter  of  a  corpora- 
tion and  any  other  act  of  legislation.  If  a  statute  lay  no 
obligation  on  the  State  to  do  or  refrain  from  doing  a  par- 
ticular thing  or  one  or  more  particular  things,  such  an 
enactment  seems  to  me  to  be  a  pure  act  of  legislation,  and 
in  no  sense  a  contract."  "  A  law  which  seeks  to  deprive 
the  Legislature  of  the  power  to  tax  must  be  so  clear, 
explicit,  and  determinative  that  there  can  be  neither  doubt 
nor  controversy  about  its  terms,  or  the  consideration  which 


POWER  OF   TAXING   SOVEREIGN.  283 

renders  it  binding.  Every  presumption  will  be  made 
against  its  surrender,  as  the  power  was  committed  by  the 
people  to  the  Government  to  be  exercised,  and  not  to  be 
alienated."     (47  Missouri,  158.) 

And  Justice  Cooley  (one  of  the  justices  of  the  Supreme 
Court  of  Michigan),  in  reviewing  the  action  of  the  United 
States  Supreme  Court,  says:  "  It  is  not  very  clear  that  this 
court  has  ever  at  any  time  expressly  declared  the  right 
of  a  State  to  grant  away  the  sovereign  power  of  taxation." 
A  court  in  Pennsylvania  has  also  said:  "Revenue  is  as 
essential  to  government  as  food  to  individuals;  to  sell  it  is 
to  commit  suicide."     (30  Pennsylvania,  9.) 

Turning  to  English  jurisprudence,  we  have  an  opinion 
of  Edmund  Burke  that  the  charter  of  the  East  India 
Company,  in  virtue  of  which  great  authority  was  exer- 
cised, "  was  a  charter  to  establish  monopoly  and  create 
power,"  and  not  entitled  to  the  protection  of  the  various 
charters  of  English  liberty. 

So  long,  however,  as  the  decision  of  the  United  States 
Supreme  Court  in  the  Dartmouth  College  case  is  not  re- 
versed by  the  same  court,  the  above  and  many  other  like 
expressions  of  opinion  on  the  part  of  judges  and  men 
learned  in  the  law  and  in  constitutional  history  have  noth- 
ing of  practical  significance. 


CHAPTER  XIII. 

RULES  OR  MAXIMS  ESSENTIAL  TO  AN  ADMINISTRATION  OF 
RIGHTFUL  TAXATION  UNDER  A  CONSTITUTIONAL  OR  FREE 
GOVERNMENT. 

PART  I. 

A  PRESENTATION  and  discussion  of  the  rules  or  maxims 
of  administration  which  are  in  conformity  with  the  fore- 
going exposition  and  discussion  of  the  origin  and  sphere 
of  taxation,  and  the  limitations  on  the  exercise  of  this 
great  power  which  are  essential  to  the  existence  and  con- 
tinuance of  a  constitutional  and  free  government,  are 
next  in  order  for  the  proper  development  and  understand- 
ing of  the  general  subject  under  consideration.  Under 
such  a  government — one  happily  characterized  and  de- 
fined by  President  Lincoln  as  "  of  the  people,  by  the 
people,  and  for  the  people  " — the  following  rules  or  max- 
ims governing  the  administration  of  its  lawful  taxation 
would  seem  to  be  almost  in  the  nature  of  economic 
axioms: 

First.  No  tax  should  he  imposed  hy  a  state  or  govern- 
ment except  hy  the  consent  of  the  people  from  whom  it  is 
to  he  collected,  given  either  directly  or  hy  their  authorized 
representatives  in  Congress,  Legislature,  or  Parliament  as- 
sembled. 

Second.  All  taxes  or  enforced  contributions  levied  hy 
the  state  in  virtue  of  its  sovereignty  should  be  solely 
(singly)  and  exclusively  for  public  purposes. 

Third.  The  sphere  of  taxation  should  be  limited  to  per- 
sons, property,  and  htisiness  exclusively  within  the  terri- 
torial jurisdiction  of  the  taxing  power. 

Fourth.  Taxes  should  he  reasonable,  regular,  and  not 
arbitrary  as  respects  method,  time,  and  place  of  assessment 
and  payment,  and,  above  all,  proportional. 
284 


MAXIMS  OF  TAXATION.  285 

Fifth.  Taxation  should  not  he  employed  as  an  agency  or 
for  the  purpose  of  enforcing  morality,  or  as  an  instrumental- 
ity for  correction  or  punishment. 

Sixth.  No  tax  should  he  levied  the  character  and  extent 
of  which  offer,  as  human  nature  is  generally  constituted,  a 
greater  inducement  to  the  taxpayer  to  evade  rather  than  pay. 

With  a  view  of  determining  whether  the  above  six 
propositions  are  so  far  fundamental  and  indisputable  as 
to  warrant  their  characterization  as  "  economic  axioms," 
attention  is  next  asked  to  the  following  summary  of  rea- 
sons, or  evidence  to  that  effect,  which  may  be  separately 
adduced  in  respect  to  each  one  of  them,  commencing  with 
the  first — that  no  tax  should  he  imposed  hy  a  state  or  gov- 
ernment except  hy  the  consent  of  the  people  from  whom 
it  is  to  he  collected,  given  either  directly  or  hy  their  au- 
thorized representatives  in  Congress,  Legislature,  or  Parlia- 
ment assembled.  "  The  right  is  then  wedded  to  the  power, 
and  representation  and  taxation  become  correlative." — 
Miller,  Justice  Samuel  F.,  on  the  Constitution. 

It  requires  no  great  amount  of  thought  to  see  that 
the  principle  involved  in  this  proposition  is  not  only  an 
essential  feature  of  every  just  system  of  taxation,  but  also 
the  primary  and  essential  condition  of  the  existence  of 
every  system  of  free  or  popular  government.  If  this  is 
not  at  once  apparent,  the  following  hrief  historical  retro- 
spect ought  to  make  it  so: 

The  first  great  effort  recorded  in  English  history  for 
its  recognition  and  establishment  as  a  fundamental  prin- 
ciple of  government  was  made  hy  the  English  barons  in 
1215,  in  their  notable  struggle  with  King  John,  and  re- 
sulted in  the  incorporation  in  the  Great  Charter  (]\Iagna 
Carta)  of  England  of  a  provision  which  substantially  for- 
bade the  king  from  imposing  any  taxes,  except  by  permis- 
sion of  the  General  Council  of  the  nation,  duly  summoned 
under  writs  regularly  issued.*     And  it  is  interesting  to 

*  The  exact  language  of  the  charter  was:  "No  scutage  or  aid 
shall  be  imposed  in  our  kingdom  unless  by  the  general  course  of 
the  nation,  except  for  ransoming  our  person  [i.  e.,  the  king],  mak- 
ing our  eldest  son  a  knight,  and  once  for  marrying  our  eldest 
daughter;  and  for  these  there  shall  be  taken  a  reasonable  aid"; 
the  barons  in  turn  agreeing  that  "  we  will  not  for  the  future  grant 
to  any  one  that  he  may  take  aid  of  his  own  free  tenants,"  other 
than  the  aids  above  stated. 


286    THE  THEORY  AND   PRACTICE  OF  TAXATION. 

note,  as  showing  the  broad  spirit  of  generous  patriotism 
animating  these  rough  old  barons  in  their  contest  with 
King  John,  that  they  stipulated  in  the  Magna  Carta 
which  they  extorted  from  him  that  every  limitation  im- 
posed in  it  for  their  protection  upon  the  feudal  rights  of 
the  king  should  be  also  imposed  upon  their  rights  as  mesne 
lords  (i.  e.,  lords  superior  in  the  second  degree)  in  favour  of 
the  undertenants  who  held  of  them. 

In  the  many  confirmations  of  the  Great  Charter  in  the 
ensuing  reigns  of  Henry  III  and  Edward  I,  its  vital  clauses 
as  to  taxation  and  the  National  Council  were,  however,  in- 
variably and  intentionally  omitted;  and  the  latter  king 
so  reasserted  the  taxing  power  of  the  crown  as  to  alarm 
the  nation  and  occasion  a  revolution  (Barons'  War,  1297), 
which  for  many  subsequent  years  prevented  any  like  as- 
sumption on  the  part  of  Edward's  successors.  Under  the 
reign  of  Charles  I  the  authority  to  levy  and  collect  taxes  in 
England  was,  however,  again  claimed — as  it  was  in  all  the 
other  European  states — to  be  vested  exclusively  in  the  king ; 
and  on  the  trial  of  John  Hampden,  in  1636,  for  his  refusal 
to  pay  a  tax  known  as  "  ship  money,"  arbitrarily  levied  by 
the  king  for  the  maintenance  of  a  naval  force,  this  was  the 
position  taken  by  the  crown  lawyers  representing  the 
prosecution  and  accepted  as  valid  by  the  judges  in  their 
verdict,  the  attorney  general  using  in  his  plea  language 
almost  identical  with  that  employed  by  Louis  XIV,  before 
cited,  in  defining  his  prerogative.* 

But  when  absolutism  in  government  was  overthrown  in 
England  in  1653,  and  a  constitutional  government  estab- 
lished, no  one  principle  was  recognised  as  more  funda- 
mental than  that  the  executive  could  levy  no  taxes  except 
such  as  had  been  granted  by  the  people  taxed,  through 
their  representatives;  and  one  of  the  very  first  stntutes 
enacted  by  Parliament  in  1689,  under  the  reign  of  Wil- 
liam and  Mary,  and  accepted  by  the  crown,  was  that  all 
levying  of  money  for  the  crowTi  by  pretence  of  prerogative 
should  be  berenfter  and  forever  illegal ;  and  secondly,  in  the 
latter  third  of  the  next  century  (1770),  the  unqualified 
affirmation  and  defence  of  the  principle  that  those  who  pay 
the  taxes  should  control  the  levying  of  them  became  the 

*  See  page  128,  ante. 


TAXATION  FOR  PUBLIC   PURPOSES.  287 

primary  cause  of  the  American  Revolution,  and  eventu- 
ated in  calling  the  United  States  into  existence.  And 
hence,  by  reason  of  such  experiences,  it  has  become  a  part 
of  the  common  law  of  all  English-speaking  people  that  the 
taxing  power  inherent  in  the  state  is  vested  exclusively 
in  the  legislative  department  of  its  government. 

Second.  All  taxes  or  enforced  contributions  levied  hy 
a  state  in  virtue  of  its  sovereignty  should  he  solely  (singly) 
and  exclusively  for  public  purposes. 

Another  and  perhaps  a  more  popular  way  of  expressing 
this  principle  would  be,  to  put  it  in  the  form  of  an  affirma- 
tion, namely:  All  taxes  that  the  people  pay,  the  government 
should  receive. 

All  recognised  authorities,  judicial  and  economic,  are 
agreed  in  regarding  the  above  proposition  as  in  the  light 
of  a  political  axiom  from  which  there  can  be  no  rational 
dissent.  From  a  great  number  of  confirmatory  and  illus- 
trative legal  opinions  and  decisions  the  following  are  espe- 
cially worthy  of  attention: 

"  No  State  government,  nor  that  of  the  United  States, 
nor  any  other  authority  professing  a  regard  for  the  rights 
of  the  people,  is  at  liberty  to  take  money  out  of  their 
pockets  for  any  other  than  a  public  purpose.  Whenever  it 
can  be  discovered  that  a  tax  is  levied  for  something  which 
properly  can  not  be  called  such,  it  may  be  successfully 
resisted  by  all  the  measures  that  the  law  allows  in  courts 
of  justice." — Miller,  Justice  8.  F.,  Lectures  on  the  Constitu- 
tion of  the  United  States,  p.  2Jf2. 

"  Taxation,  by  the  very  meaning  of  the  term,  implies 
the  raising  of  money  for  public  uses,  and  excludes  the 
raising  of  it  for  private  objects  and  purposes." — Allen  vs. 
Inhabitants  of  Jay,  60  Maine  (per  Appleton,  C.  J.). 

"  Taxation  is  allowable  only  for  public  purposes.  The 
name  (taxation)  is  not  rightfully  applied  with  reference  to 
objects  of  a  private  nature,  such  as  a  bridge,  manufactory, 
or  foundry  owned  by  individuals.  An  act  of  the  Legis- 
lature authorizing  a  levy  for  a  mere  private  purpose,  or 
for  a  purpose  which,  though  public,  is  one  in  which  the 
people  from  which  it  is  exacted  have  no  interest,  would  not 
he  a  laiv,  but  a  judicial  sentence." — Hillard,  Law  of  Taxa- 
tion, 1875. 

What  are  public  purposes'?    This  question  is  an  embar- 


288    THE  THEORY  AND   PRACTICE  OP  TAXATION. 

passing  one,  and  in  attempting  to  answer  it  there  is  oppor- 
tunity for  much  latitude  of  opinion.  In  the  first  place, 
the  ordinary  or  dictionary  definition  of  the  term  "  public," 
as  forming  a  part  of  the  above  question,  is  certainly  in- 
felicitous and  ambiguous — namely,  "  pertaining  to  a  na- 
tion, state,  or  community;  extending  to  the  whole  people  " 
(Webster).  Thus,  for  example,  under  a  purely  despotic 
form  of  government  any  exaction  of  contributions  (taxes) 
from  the  people,  and  expenditures  resulting  therefrom, 
which  the  heads  of  the  state  may  decree,  be  it  for  the 
expenses  of  a  harem,  the  amusement  or  dignity  of  royalty, 
the  reward  or  pensions  of  court  favourites,  or  the  main- 
tenance of  a  military  force  for  the  subjugating  of  the 
people,  would  be  held  to  be  for  a  public  purpose,  and  any 
subject  that  should  undertake  to  contravene  this  assump- 
tion would  be  amenable  to  punishment  and  perhaps  to 
the  charge  of  treason. 

On  the  other  hand,  under  all  popular  or  constitutional 
governments  it  would  not  probably  be  disputed,  that  taxa- 
tion should  have  but  one  object  and  taxes  but  one  destina- 
tion— namely,  to  supply  the  expenses  necessitated  by  those 
services  which,  according  to  established  usage,  it  is  the 
business  of  government  to  provide,  and  in  contradistinc- 
tion to  those  which  private  inclination,  interest,  or  liberal- 
ity will  supply  whenever  a  necessity  or  demand  for  such 
action  becomes  sufficiently  manifest.  Any  form  of  levy, 
therefore,  under  such  a  government  upon  the  person  or 
property  of  its  citizens  that  does  not  conform  to  these  con- 
ditions is  not  for  a  public  purpose  and  is  not  entitled  to  be 
called  taxation. 

The  following  further  amplification  of  these  proposi- 
tions by  the  Supreme  Court  of  Massachusetts  has  probably 
also  the  unqualified  indorsement  of  all  judicial  authorities 
in  the  United  States: 
^ '  "  The  incidental  advantage  to  the  public,  or  the  State, 

~S  /which  results  from  the  promotion  of  private  interests  and 
.  i  /  the  prosperity  of  private  enterprise  or  business,  does  not 
TVj  justify  their  aid  by  the  use  of  public  money  raised  by 
taxation,  or  for  which  taxation  may  become  necessary. 
It  is  the  essential  character  of  the  direct  object  of  the 
expenditure  which  must  determine  its  validity  as  justify- 
>    ing  a  tax,  and  not  the  magnitude  of  the  interest  to  be 


t 


DEFINITION  OP  PUBLIC  PURPOSE.  289 

affected,  nor  the  degree  to  which  the  general  advantage 
of  the  community,  and  thus  the  public  welfare,  may  be 
ultimately  benefited  by  their  promotion.  The  principle  of 
this  distinction  is  funclamental.  It  underlies  all  govern- 
ment that  is  based  upon  reason  rather  than  upon  force."/ 
— Lowell  vs.  Boston,  111  Mass.,  J^SJf.  ^ 

"  It  has  become  a  favourite  maxim  that  it  is  the  duty 
of  government  to  promote  the  happiness  of  the  people. 
The  phrase  may  be  interpreted  so  as  to  mean  well,  but  it 
is  a  very  inaccurate  and  unhappy  one.  It  is  the  inalien- 
able right  of  men  to  pursue  their  own  happiness,  each  man 
under  such  restraint  of  law  as  will  leave  every  other  man 
equally  free  to  do  the  same.  The  happiness  of  the  people  j 
is  the  happiness  of  the  individuals  who  compose  the  mass.  ] 
Speaking  now  with  reference  to  those  objects  only  which 
human  laws  can  reach  and  influence,  he  is  the  happy  man 
who  sees  his  condition  in  life  constantly  and  gradually, 
though  it  may  be  slowly,  improving.  Let  government  keep 
its  hands  off,  do  nothing  in  the  way  of  creating  the  subject- 
matter  of  speculation,  and  things  naturally  fall  into  this 
channel." — Sharswood,  Legal  Ethics. 

The  distinction  between  a  public  and  a  private  pur- 
pose in  respect  to  taxation,  however,  is  often  a  matter  of 
great  difficulty  and  embarrassment;  and  one  eminent  jurist 
and  writer  on  taxation  (Cooley)  has  indeed  declared  that 
"  there  is  no  such  thing  as  drawing  a  clear  line  of  dis- 
tinction between  purposes  of  a  public  and  those  of  a  pri- 
vate nature."  But  the  question  at  issue  has  been  so  often 
made  the  subject  of  definition  and  illustration  by  the  high- 
est courts  of  the  United  States — speaking  through  jurists 
of  the  highest  conceded  ability — that,  although  complete 
unison  of  opinion  does  not  now  and  probably  never  will 
exist  as  to  whether  certain  particular  purposes,  as  expendi- 
tures by  the  State  for  bounties,  facilitating  transporta- 
tion, education,  charities,  amusements,  celebrations,  and 
the  like,  are  within  the  requirements  to  make  them  public. 
The  sphere  for  disagreement  has,  however,  within  recent 
years  greatly  narrowed.  One  of  the  most  clear  and  com- 
prehensive of  illustrations  on  this  topic,  given  by  the  Su- 
preme Court  of  Michigan  (People  vs.  Township,  20  Michi- 
gan, 452),  through  Justice  Thomas  M.  Cooley,  was  as 
follows: 


290    THE  THEORY  AND  PRACTICE  OP   TAXATION. 

"  In  respect  to  '  certain  things  of  absolute  necessity  to 
civilized  society/  the  State  is  precluded  either  by  express 
constitutional  provisions  or  by  necessary  implications,  from 
providing  for  at  all,  and  which  are  thus  left  wholly  to  the 
fostering  care  of  private  enterprise  and  private  liberality. 
We  concede,  for  instance,  that  religion  is  essential,  and 
that  without  it  we  should  degenerate  to  barbarism  and 
brutality;  yet  we  prohibit  the  State  from  burdening  the 
citizen  with  its  support,  and  we  content  ourselves  with 
recognising  and  protecting  its  observance  on  similar 
grounds.  Certain  professions  and  occupations  in  life  are 
also  essential,  but  we  have  no  authority  to  employ  the 
public  money  to  induce  persons  to  enter  them.  The 
necessity  may  be  pressing  and  to'  supply  it  may  be  in  a  cer- 
tain sense  to  accomplish  a  public  purpose,  but  it  is  not  a 
purpose  for  which  the  power  of  taxation  may  be  employed. 
The  public  necessity  for  an  educated,  skilful  physician 
in  some  particular  locality  may  be  great  and  pressing,  yet, 
if  the  people  should  be  taxed  to  hire  one  to  locate  there, 
the  common  voice  would  exclaim  that  the  public  moneys 
were  being  devoted  to  a  private  purpose.  The  opening  of  ( 
a  new  street  in  a  city  or  village  may  be  of  trifling  impor- 
tance as  compared  with  the  location  within  it  of  some  new  j 
business  or  manufacture;  but  while  the  right  to  pay  out 
the  public  funds  for  the  one  would  be  unquestionable,  the 
other  by  common  consent  is  classified  as  a  private  interest 
which  the  public  can  aid  as  individuals,  if  they  see  fit, 
while  they  are  not  permitted  to  employ  the  machinery  of 
government  to  that  end.  Indeed,  the  opening  of  a  new 
street  in  the  outskirts  of  a  city  is  generally  very  much  more 
a  matter  of  private  interest  than  of  public  concern;  yet, 
even  in  a  case  where  the  public  authorities  did  not  regard 
the  street  as  of  sufficient  importance  to  induce  their  taking 
the  necessary  action  to  secure  it,  it  would  not  be  doubted 
that  the  moment  they  should  consent  to  so  accept  it  as  a 
gift,  the  street  would  at  once  become  a  public  object  and 
purpose  upon  which  the  public  funds  might  be  expended 
with  no  more  restraints  upon  the  action  of  the  authorities 
in  that  particular  than  if  it  were  the  most  prominent  and 
essential  thoroughfare  in  the  city. 

"  By  common  consent,  also,  a  large  portion  of  the  most 
urgent  needs  of  society  are  relegated  exclusively  to  the  law 


PRIVATE  AND  PUBLIC  PURPOSES.  291 

of  demand  and  supply.  It  is  this  in  its  natural  operation 
and  without  the  interference  of  the  Government  that  gives 
us  the  proper  proportion  of  tillers  of  the  soil,  artisans, 
manufacturers,  merchants,  and  professional  men,  and  that 
determines  when  and  where  they  shall  give  to  society  the 
benefit  of  their  particular  services.  However  great  the 
need  in  the  direction  of  any  particular  calling,  the  inter- 
ference of  Government  is  not  tolerated,  because,  though 
it  might  be  supplying  a  public  want,  it  is  considered  as 
invading  the  domain  that  belongs  exclusively  to  private 
inclination  and  enterprise.  We  perceive,  therefore,  that 
the  term  '  public  purpose/  as  employed  to  denote  the  ob- 
jects for  which  taxes  may  be  levied,  has  no  relation  to  the 
urgency  of  the  public  need  or  to  the  extent  of  the  public 
benefit  which  is  to  follow.  It  is,  on  the  other  hand,  merely 
a  term  of  classification  to  distinguish  the  objects  for  which, 
according  to  settled  usage,  the  Government  is  to  provide, 
from  those  which,  by  the  like  usage,  are  left  to  private 
inclination,  interest,  or  liberality/' 

Under  a  constitutional  and  representative  form  of  gov- 
ernment the  determination  of  what  constitutes  a  public 
purpose  in  respect  to  taxation  rests  primarily  in  the  legis- 
lative department  of  such  government ;  biit  legislative  de- 
termination on  this  subject  is  not  absolutely  conclusive,  for 
the  question  ultimately  is  one  of  law.  If  this  was  not  so,  a 
Legislature  would  possess  unlimited  power  to  make  any- 
thing lawful  which  it  might  call  taxation,  which  would 
be  equivalent  to  an  unlimited  power  to  plunder  the  citi- 
zen.* 

Brief  references  to  certain  other  court  cases,  in  which 
the  validity  of  this  claim  that  certain  taxes,  or  acts  involv- 
ing the  imposition  of  taxes,  were  for  public  purposes,  was 
the  question  at  issue,  will  also  help  to  an  understanding  of 
the  subject. 

In  1872  the  city  of  Boston  was  authorized  by  the  Legis- 
lature of  Massachusetts  to  issue  bonds  to  the  amount  of 
$20,000,000,  the  proceeds  to  be  loaned  to  persons  whose 

*  In  every  case  in  which  the  Legislature  shall  have  clearly 
exceeded  its  authority  in  this  regard,  and  levied  a  tax  for  a  pur- 
pose not  public,  it  is  competent  for  any  one,  who  in  person  or 
property  is  affected  by  the  tax,  to  appeal  to  the  courts  for  pro- 
tection.— Cooley,  Law  of  Taxation,  p.  55. 


292    THE  THEORY  AND  PRACTICE  OP  TAXATION. 


property  had  been  destroyed  by  a  recent  great  fire.  The 
Supreme  Court  of  Massachusetts  held  that,  although  such 
"  a  promotion  of  the  interests  of  individuals  might  result 
incidentally  in  the  advancement  of  the  public  welfare," 
the  measure  was,  "  in  its  essential  character,  a  private  and 
not  a  public  object,"  and  therefore  unconstitutional. — 
Loivell  vs.  Boston,  111  Mass. 

A  similar  statute  enacted  by  the  Legislature  of  South 
Carolina  in  aid  of  sufferers  by  a  fire  in  Charleston  was 
also  declared  by  the  Supreme  Court  of  that  State  as  uncon- 
stitutional.— Feldman  &  Co.  vs.  City  of  Cliarlesion, 
S.  C,  57. 

(In  1870  the  town  of  Jay,  in  Maine,  voted  to  loan 
$10,000  to  a  firm  of  manufacturers,  on  condition  that  they 
would  move  their  works  to  the  town  and  establish  and 
maintain  them  there  for  ten  years.  This  vote,  although 
ratified  by  an  act  of  the  Legislature,  the  Supreme  Court 
of  the  State  declared  void. — Allen  vs.  Jay,  60  Maine,  124- 
r  In  connection  with  this  case  the  Legislature  of  the 
State  of  Maine  officially  put  the  following  question  to  the 
justices  of  its  Supreme  Court:  "  Has  the  Legislature  au- 
thority under  the  Constitution  to  pass  laws  enabling  towns 
by  gifts  of  money  to  assist  individuals  or  corporations  to 
establish  or  carry  on  manufacturing  of  various  kinds 
within  or  without  the  limits  of  said  towns?"  The  ques- 
tion was  answered  in  the  negative.  The  court  used  the 
following  language:  "There  is  nothing  of  a  public  nature 
any  more  entitling  the  manufacturer  to  public  gifts  than 
the  sailor,  the  mechanic,  the  lumberman,  or  the  farmer. 
Our  Government  is  based  on  an  equality  of  rights.  The 
State  can  not  rightfully  discriminate  among  occupations; 
for  a  discrimination  in  favour  of  one  hrancli  of  industry  is  a 
discrimination  adverse  to  all  other  branches.  The  State  is 
equally  bound  to  protect  all,  giving  no  undue  advantage 
or  special  or  exclusive  preference  to  any.  Taxation  in 
aid  of  private  enterprise  is  to  load  the  tables  of  the  few 
with  bounty  that  the  many  may  partake  of  the  crumbs  that 
fall  therefrom." 

In  1875  the  Legislature  of  Kansas  authorized  town- 
ships to  issue  bonds  for  the  purpose  of  raising  money  to 
be  applied  for  the  relief  of  such  farmers  within  their 
limits  as  had  been  deprived,  by  a  failure  of  crops,  of  seed 


GRANTS  TO   PRIVATE  OBJECTS.  293 

with  which  to  plant  for  a  new  season.  This  authorization 
was  held  by  the  court  (Justice  Brewer)  to  be  unconstitu- 
tional, on  the  ground  that  the  use  of  public  moneys  for 
the  accommodation  of  a  certain  class  was  not  a  public  pur- 
pose— "  not  for  the  benefit  of  the  indigent,  but  of  those 
who  have  fields  to  fill  and  stocks  to  care  for  " — and  that 
if  the  principle  involved  is  once  recognised,  it  may  be  in- 
voked with  equal  propriety  in  aid  of  other  or  all  classes. 
— State  vs.  Osawkee,  IJf  Kansas,  Jf88. 

In  the  State  of  New  York  its  Court  of  Appeals  has  held 
void  an  act  of  the  Legislature  authorizing  a  village  to  take 
stock  in  a  manufacturing  corporation,  and  to  issue  bonds 
to  raise  the  money  to  pay  for  such  subscription,  and  to 
levy  taxes  for  the  payment  of  the  principal  and  interest 
on  said  bonds.  (Weismer  vs.  Douglas,  64  IST.  Y.,  91.)  In 
a  similar  case  (Sweet  vs.  Hurlbert,  51  Barber)  Justice 
James  expressed  himself  as  follows: 

"  If  this  can  be  done,  it  is  legal  robbery;  less  respect- 
able than  highway  robbery  in  this,  that  the  perpetrator  of 
the  latter  assumes  the  danger  and  infamy  of  the  act,  where 
this  act  has  the  shield  of  legislative  irresponsibility." 

In  Cole  vs.  La  Grange  (113  U.  S.),  the  case  turned  on 
an  act  of  the  Legislature  of  Missouri  authorizing  the  city 
of  La  Grange,  whenever  two  thirds  of  the  resident  tax- 
payers signified  their  approval  at  a  special  election,  to 
levy  a  tax  not  exceeding  two  per  cent  per  annum  on  the 
assessed  value  of  the  real  and  personal  property  in  the 
city,  to  pay  for  a  donation  or  subscription  to  the  stock  of  a 
manufacturing  company.  The  court  held  the  act  void; 
the  opinion,  written  by  Mr.  Justice  Gray,  embodying  the 
following  language: 

"  The  general  grant  of  legislative  power  in  the  Con- 
stitution of  the  State  does  not  enable  the  Legislature,  in 
the  exercise  either  of  the  right  of  eminent  domain  or  of 
the  right  of  taxation,  to  authorize  counties,  cities,  or  towns 
to  contract,  for  private  objects,  debts  which  must  be  paid 
by  taxes.  It  can  not,  therefore,  authorize  them  to  issue 
boncls^to  assist  merchants  or  manufacturers,  whether 
natural  persons  or  corporations,  in  their  private  business. 
These  limits  of  the  legislative  power  are  now  too  firmly 
established  by  Judicial  decisions  to  require  extended  argu- 
ment upon  the  subject." 


294    THE   THEORY  AND   PRACTICE   OF   TAXATION. 

In  Burlington  vs.  Beaslej^  (94  U.  S.,  310),  however, 
taxation  in  aid  of  a  public  gristmill,  the  tolls  of  which  the 
Legislature  would  have  a  right  to  regulate,  was  sustained; 
the  construction  of  such  a  mill  in  a  new  country  being 
probably  a  public  necessity,  and  not  possible  without  pub- 
lic aid. 

But  perhaps  the  most  weighty  opinion  on  this  question 
is  that  of  the  United  States  Supreme  Court  in  the  case  of 
the  Loan  x\ssociation  vs.  Topeka,  20  Wall,  655  (before  re- 
ferred to  on  page  231).  In  1872  the  Legislature  of  Kan- 
sas passed  an  act  authorizing  cities  and  counties  to  issue 
bonds  for  the  purpose  of  encouraging  the  establishment 
of  manufactures  and  other  like  enterprises;  and  under 
this  act  the  city  of  Topeka  created  and  issued  its  bonds,  to 
the  extent  of  $100,000,  and  gave  the  same  "  as  a  dona- 
tion," a  majority  of  voters  approving,  to  an  iron-bridge 
company,  as  a  consideration  for  establishing  and  operating 
their  shops  within  the  limits  of  the  city.  The  interest 
coupons  first  due  on  these  bonds  were  promptly  paid  by 
the  city  out  of  a  fund  raised  by  taxation  for  that  purpose, 
but  subsequently,  when  the  second  coupons  became  due, 
and  the  bonds  had  passed  out  of  the  possession  of  the 
bridge  company  by  bona  fide  sale  to  a  loan  association,  the 
city  meanly  repudiated  its  obligations,  on  the  ground  that 
the  Legislature  of  Kansas  had  no  authority  under  the  Con- 
stitution of  the  State  to  authorize  the  issue  of  bonds,  the 
interest  and  principal  of  which  were  to  be  paid  from  the 
proceeds  of  taxes,  for  any  such  purpose  as  the  encourage- 
ment of  manufacturing  enterprises.  Legal  proceedings  to 
enforce  payment  were  thereupon  commenced  by  the  bond- 
holders in  the  United  States  Circuit  Court,  and  judgment 
having  been  there  given  for  the  city,  the  case  was  appealed 
to  the  United  States  Supreme  Court,  where  with  only  one 
dissenting  voice  (Judge  Clifford)  the  judgment  of  the 
lower  court  was  affirmed. 

The  following  extracts  from  the  opinion  of  the  court, 
given  by  Justice  ]\Iiller,  will  forever  stand  as  embodying 
economic  and  legal  principles  of  the  highest  importance: 

"  We  have  established,  we  think,  beyond  a  cavil  that 
there  can  be  no  lawful  tax  which  is  not  laid  for  a  public 
purpose.  ...  It  may  not  be  easy  to  draw  the  line  in  all 
cases  so  as  to  decide  what  is  a  public  purpose  in  this  sense 


LOAN  ASSOCIATION    VERSUS  TOPEKA.  295 

and  what  is  not.  But  in  the  case  before  us,  in  which  towns 
are  authorized  to  contribute  aid  by  way  of  taxation  to  any 
class  of  manufactures,  there  is  no  difficulty  in  holding  that 
this  is  not  such  a  public  purpose  as  we  have  been  consider- 
ing. If  it  be  said  that  a  benefit  results  to  the  local  public 
of  a  town  by  establishing  manufactures,  the  same  may  be 
said  of  any  other  business  or  pursuit  which  employs  capi- 
tal or  labour.  The  merchant,  the  mechanic,  the  innkeeper, 
the  banker,  the  builder,  the  steamboat  owner,  are  equally 
promoters  of  the  public  good,  and  equally  deserving  the 
aid  of  the  citizens  by  forced  contributions.  No  line  can  be 
drawn  in  favour  of  the  manufacturer  which  would  not 
open  the  public  treasury  to  the  importunities  of  two  thirds 
of  the  business  men  of  the  city  or  town."  * 

Twelve  years  later  a  similar  case  was  decided  by  the 
same  United  States  Court  in  the  same  way.     Under  the 


*  Here,  then,  we  have  from  the  Supreme  Court  of  the  United 
States  a  decision,  as  recent  as  October,  1874,  defining  the  limitation 
of  the  power  of  taxation  growing  out  of  "  the  essential  nature  of 
a  free  government";  and  if  under  such  natural  limitation  there 
is  no  power,  as  the  court  decided,  in  a  State  government  (irre- 
spective of  anything  to  the  contrary  in  the  Constitution  of  such 
State)  to  levy  taxes  for  the  support  or  encouragement  of  manu- 
facturers, it  is  difficult  to  see  under  what  rule  or  authority  the 
Federal  Government  can  levy  taxes  like  those  now  imposed,  which, 
from  the  circumstance  that  they  yield  year  after  year  little  or 
no  revenue  to  the  national  Treasury,  are  manifestly  levied  and 
maintained  for  other  than  public  purposes. 

Whether,  if  a  case  involving  the  validity  of  tariff  taxes  like 
those  above  specified  could  be  brought  before  the  United  States 
Supreme  Court,  it  would  apply  the  same  rule  of  principle  to  the 
Federal  that  it  has  to  a  State  government,  in  respect  to  the  limita- 
tion of  the  sphere  of  taxation,  may  be  regarded  as  an  open  ques- 
tion. An  opportunity  for  avoiding  a  decision  on  this  subject  might 
be  found  in  the  assumption  that  there  was  no  evidence  before  the 
court  that  any  particular  tariff  act  was  passed  by  Congress  for 
any  other  than  revenue  purposes,  and  that  the  court  could  not 
take  cognizance  of  a  subsequent  change  in  circumstances  growing 
out  of  changes  in  the  conditions  of  prices  and  supply  and  demand. 
And  in  this  connection  it  is  curious  to  note  that  in  the  first  tariff 
enactments  of  the  Federal  Congress,  which  embodied  the  prin- 
ciple of  protection,  the  preambles  of  the  act  openly  stated  and 
recognised  the  objects  aimed  at,  viz.,  "  the  support  of  the  Govern- 
ment, and  the  encouragement  and  protection  of  manufactures " ; 
while  in  later  years  the  latter  clause,  relative  to  manufactures,  has 
been  shrewdly  omitted  from  the  tariff  act  preambles — possibly 
from  a  suspicion  that  there  was  a  constitutional  question  covered 


296    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

authority  of  a  State  law,  the  city  of  Parkersburg,  Vir- 
ginia, had  issued  bonds  in  aid  of  a  private  enterprise.  The 
court  decided  these  bonds  to  be  void  for  the  reasons  set 
forth  in  Loan  Association  vs.  Topeka.  The  decision  was 
rested  wholly  upon  the  decision  in  the  earlier  case,  and 
there  was  no  dissent  from  it,  although  one  justice  (Clifford) 
had  dissented  in  the  Topeka  case.  Justice  Blatchford,  in 
r  rendering  the  opinion,  said:  "  Taxation  to  pay  the  bonds 
in  question  is  not  taxation  for  a  public  object.  It  is  taxa- 
tion which  takes  the  private  property  of  one  person  for  the 
private  use  of  another  person." 

Particular  care  has  also  been  taken  by  the  courts  to 
close  the  door  against  the  possibility  of  making  taxation 
subservient  to  any  private  purpose  by  incorporating  it  with 
some  public  purpose: 

"  Public  aid  to  private  purposes  can  not  be  secured  by 
yoking  them  to  a  public  purpose.  And  where  the  public 
and  private  purposes  are  attempted  to  be  aided  by  a  single 
concession,  the  latter  vitiate  rather  than  the  former  up- 
hold the  grant.  The  entire  purpose — or,  if  there  are  sev- 
eral, and  no  rule  of  apportionment  as  to  the  application 
of  the  proceeds — then  all  the  purposes  must  be  public." — 
Opinion  of  Justice  Brewer,  23  Kansas,  7^5. 

The  cases  in  which  the  above  conclusions  have  been 
apparently  antagonized  before  the  courts  of  the  United 
States  have  been  numerous,  and  have  related  mainly  to 
the  right  of  the  Legislatures  of  the  several  States  to  levy 
taxes  for  purposes  in  respect  to  which  the  paramount 
object — i.  e.,  for  public  or  private  good — was  not  clearly 
evident ;  as  for  the  construction  of  railroads,  the  drainage 
of  land,  the  promotion  of  sanitary  measures,  the  payment 
of  bounties  in  aid  of  educational  or  charitable  institutions 

up  in  this  matter  of  protective  duties  which  some  day  would  not 
be  found  able  to  stand  judicial  examination. 

But  until  the  contrary  is  proved,  the  opinions  and  judgments  of 
the  Supreme  Court  of  the  United  States,  as  given  in  the  Topeka 
case,  would  seem  to  admit  of  no  other  construction  than  that 
taxation  for  any  other  purpose  than  revenue,  or  taxation  for  pro- 
tection, or  in  aid  of  private  interests  engaged  in  manufacturing, 
is  beyond  the  province  of  the  legislative  power  of  either  our  na- 
tional or  State  governments,  and  when  imposed — to  use  the  exact 
language  of  the  court — "  is  none  the  less  robbery  because  it  is  done 
under  the  forms  of  law  and  is  called  taxation." 


RAILROADS  AS  PUBLIC  OBJECTS.  297 

whose  property-  is  owned  by  and  whose  policy  is  directed 
by  private  individuals,  religious  sects,  or  corporations,  and 
not  by  the  State,  and  the  lilvc. 

The  question  whether  taxation  by  which  aid  was 
afforded  by  towns  or  counties  to  the  building  of  railroads 
was  for  a  public  purpose,  has  been  especially  brought  to  the 
attention  of  the  courts.  State  and  Federal,  in  repeated 
instances;  and,  although  the  preponderance  of  opinion  has 
been  in  the  affirmative  when  legislative  authority  has  been 
previously  granted,  yet  the  decision  of  the  courts  has 
rarely  been  unanimous,  and  in  some  cases  has  been  adverse. 
Thus,  in  People  vs.  Township  (20  Michigan,  452),  an  act 
of  the  Legislature  of  Michigan  authorizing  townships  to 
pledge  their  credit  to  aid  in  the  construction  of  a  railroad 
from  the  city  of  Detroit  to  a  suburban  village  was  held 
void  in  a  remarkably  able  opinion  by  Justice  Cooley. 
Again,  in  Whiting  vs.  Sheboygan  (25  Wisconsin,  157),  an 
act  of  the  Legislature  of  Wisconsin  authorizing  the  county 
of  Fond  du  Lac  to  levy  a  tax,  the  proceeds  of  which  were 
to  be  given  to  aid  the  building  of  a  railroad  from  the 
city  of  Fond  du  Lac  to  the  city  of  Ripon,  was  also  held  by 
the  court  to  be  void. 

The  argument  in  favour  of  the  unconstitutionality  or 
wrongfulness  of  the  application  of  the  proceeds  of  the 
taxation  of  the  people  by  States  or  municipalities  for  aid- 
ing the  construction  of  railroads  has  been,  that  they  are 
built  by  corporations  organized  mainly  for  the  purpose  of 
gain;  that  they  are  under  the  control  of  such  corporations 
rather  than  that  of  the  State ;  and  that  the  taxes  in  ques- 
tion went  to  swell  the  profits  of  individuals,  and  did  not 
result  in  good  to  the  State  or  benefit  to  the  public  except 
in  a  remote  collateral  way. 

On  the  other  hand,  it  has  been  urged  that  roads,  canals, 
bridges,  navigable  streams,  and  all  other  highways,  have 
in  all  times  been  matters  of  public  concern;  that  such 
channels  of  travel  and  of  the  carrying  business  have  al- 
ways been  established,  improved,  and  regulated  by  the 
State;  and  that  a  railroad  had  not  lostthis  character  be-^p^  i 
cause  constructed  by  individual  enterprise,  aggregated  1'  ''^^^ 
into  a  corporation. 

In  rendering  an  opinion  in  the  celebrated  Loan  Asso- 
ciation vs.  Topeka  case,  the  court  took  up  the  question 
20 


298    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

whether  the  grants  of  public  mone}'  or  credit  which  have 
been  made  by  counties  and  municipalities  in  the  United 
States  in  aid  of  railroad  construction  were  not  by  parity 
of  reasoning  equally  unconstitiitional  as  similar  grants  for 
establishing  or  encouraging  manufactures  have  been  held 
to  be;  and  remarked  that  in  all  such  cases,  which  have 
been  numerous  before  the  courts  in  every  State  in  the 
Union,  "  the  decision  has  turned  upon  the  question 
whether  the  taxation  by  which  the  aid  was  afforded  to  the 
building  of  railroads  was  for  a  public  purpose.  Those  of 
the  judges  who  came  to  the  conclusion  that  it  was,  held 
the  law  for  that  purpose  valid.  Those  who  could  not 
reach  that  conclusion  held  them  void.  And  it  is  safe  to 
say  that  no  court  has  held  debts  created  in  aid  of  railroad 
companies,  by  counties  or  towns,  valid  on  any  other  ground 
than  that  the  purpose  for  which  the  tax  was  levied  was 
a  public  use,  a  purpose  or  object  which  it  was  the  right  and 
the  duty  of  the  State  governments  to  assist  by  money 
raised  from  the  people  by  taxation."  But,  continues  the 
judge,  "  Of  the  disastrous  consequences  which  have  fol- 
loived  its  recognition  hy  the  courts,  and  which  were  pre- 
dicted when  it  ivas  first  established,  there  can  he  no  douht." 

It  is  interesting  to  note  in  this  connection  that  since 
the  decision  in  this  case  many  States  of  the  Union  have 
been  forced  to  prohibit  loans  in  aid  of  the  construction 
of  railroads  and  like  enterprises  in  the  revision  of  their 
Constitutions. 

When  the  purpose  of  taxation  is  evidently  to  primarily 
promote  the  interests  of  individuals — i.  e.,  to  establish  a 
manufactory,  a  brick  company,  a  hotel,  and  the  like — the 
courts  whose  province  it  is  to  decide  whether  the  purpose 
is  public  or  private  will  as  a  rule  undoubtedly  declare  it 
void. 

A  noted  and  the  almost  solitary  instance  in  which  the 
above  proposition  and  precedents  have  been  clearly  an- 
tagonized by  a  judicial  decision  is  to  be  found  in  a  case 
in  Louisiana,  where  an  act  of  the  State  Legislature  au- 
thorizing a  municipal  subscription  to  the  stock  of  a  com- 
pany incorporated  to  build  a  theatre  was  held  valid,  on 
the  ground  that  "  it  would  contribute  to  the  wealth  and 
embellishment  of  the  city,  afford  a  place  of  relaxation  and 
amusement,  and  would  tend  to  correct  and  enlighten  the 


SUGAR  BOUNTY  CASE.  299 

morals  of  the  citizens." — First  Municipality  vs.  New  Or- 
leans Theatre  Company,  2  Roh.,  Louisiana,  209. 

The  Sugak  Bounty  Case  of  1891. — A  review  of  this 
department  of  the  application  of  taxation  would  be  in- 
complete that  failed  to  notice  a  legal  contention  before 
the  Supreme  Court  of  the  United  States  in  1891,  respect- 
ing the  constitutionality  of  the  tariff  act  of  1890,  which 
was  questioned  on  several  grounds;  one  of  them  being  a 
provision  requiring  the  payment  of  bounties  to  every  pro- 
ducer of  sugar  of  certain  saccharine  strength  *  from  beet, 
sorghum,  sugar  cane,  or  maple  sap,  grown  or  produced 
within  the  United  States.  Under  this  provision  of  the 
tariff  enactment  of  1890,  the  citizen  of  Connecticut  was 
taxed  for  the  benefit  of  the  farmer  of  Nebraska  or  Cali- 
fornia, and  the  farmer  of  New  York  for  the  benefit  of  the 
Louisiana  planter;  the  farmer  who  raised  wheat  and  corn 
at  ten  or  twelve  dollars  an  acre  was  taxed  for  the  benefit 
of  a  farmer  in  a  distant  State  who  raised  sugar  cane  or 
sugar  beets  at  fifty  or  a  hundred  dollars  an  acre.  There 
was,  moreover,  but  little  doubt  that  the  inclusion  of  sugar, 
made  from  maple  sap,  in  the  bounty  provision,  was  not 
originally  contemplated  by  the  originators  and  promoters 
of  the  act;  inasmuch  as  the  manufacture  of  such  sugar  is 
one  of  the  most  profitable  industries  of  the  country,  and 
as  a  rule  readily  calls  for  a  fancy  or  artificial  price;  but 
was  included  in  the  act,  while  under  consideration  by 
Congress,  for  the  reason  that  its  enactment  into  law 
would  otherwise  have  been  difficult  or  impossible.  An- 
other interesting  and  anomalous  feature  of  this  case  was 
that  it  originated  in  an  attempt  to  obtain  the  bounty  after 
the  enactment  (law)  offering  it  was  repealed,  on  the 
ground  that  the  claimants  planted  cane  in  expectation 
of  the  continuance  of  the  bounty,  and  would  suffer  loss 
if  they  did  not  get  it.  The  question  of  the  validity  of 
the  entire  tariff  act,  by  reason  of  the  unconstitutionality 
of  the  bounty  provision  contained  in  it,  having  been  raised, 
the  attorney  general  of  the  United  States  antagonized  such 
assumption  before  the  court  as  follows: 


*  Two  cents  per  pound  on  sugar  testing  not  less  than  90°  by 
the  polariscope,  and  one  and  three  fourths  cents  per  pound  on 
sugar  testing  less  than  90°,  but  not  less  than  80°. 


300    THE  THEORY  AND   PRACTICE  OP  TAXATION. 

First,  that  under  the  clause  of  the  Federal  Constitution 
(section  8  of  Article  I)  which  empowers  Congress  to  levy 
taxes,  duties,  etc.,  "  to  pay  the  debts  and  provide  for  the 
general  welfare  "  of  the  United  States,  Congress  has  the 
power  to  expend  taxes  for  anything  which,  in  its  judgment, 
is  "  for  the  general  welfare."  Second,  tliat  the  judicial 
decisions  of  the  State  courts,  to  the  clfect  that  taxation, 
to  be  lawful,  must  be  for  ])ublic  purposes,  have  no  applica- 
tion to  this  controversy,  inasmuch  as  they  were  all  of  them 
cases  of  municipal  taxation,  which  must  be  for  public 
municipal  purposes;  and  that  it  is  obvious  that  the  estab- 
lishment of  a  particular  industry  in  one  place,  by  a  bonus 
to  specified  private  individuals,  is  a  very  different  object 
for  taxation  than  the  encouragement  by  the  national  Gov- 
ernment of  a  widespread  industry  in  many  quarters  of  the 
Union  for  national  purposes,  with  a  view  of  diversifying 
the  industries  of  the  country  and  making  it  independent 
of  other  countries  for  its  necessities." — (Speech  of  United 
States  Attorney-General  Miller.)  Third,  that  the  assump- 
tion that  "  public  purposes "  in  respect  to  taxation  by 
Congress  means  something  different  than  the  same  phrase 
when  applied  to  State  taxation  is  sustained  by  instances  in 
which  Congress  has  authorized  the  expenditure  of  public 
moneys  for  bounties  or  relief  to  people  in  this  and  other 
countries;  some  forty  cases  of  this  character  being  cited, 
in  which  relief  in  the  form  of  money  or  supplies  was  given 
to  sufferers  by  fire,  grasshoppers,  overflow  of  the  Missis- 
sippi, yellow  fever,  earthquakes  (one  in  Venezuela,  South 
America),  and  for  defraying  the  expense  of  transporting 
food  to  Ireland,  France,  and  Germany.  To  these  instances 
may  perhaps  be  added  the  "  codfish  bounty,"  which  was 
practically  a  drawback  upon  the  duty  on  imported  salt  used 
for  preserving  fish. 

In  rejoinder  it  was  contended:  First,  that  if  Congress 
,  has  power  to  expend  taxes  for  anything  which  in  its  judg- 
ment is  "for  the  general  welfare,"  then  there  is  practi- 
cally no  limitation  whatever  upon  its  constitutional  power 
to  raise  and  appropriate  taxes;  and  that  its  power  to  treat 
the  public  purse  as  its  own  and  give  away  the  proceeds  of 
taxation  is  as  unlimited  as  is  the  cupidity  of  congressional 
lobbyists.  It  was  also  ingeniously  pointed  out  that  the 
position  of  the  attorney-general  was  equivalent  to  saying 


GENERAL  WELFARE.  301 

that  when  a  tax  is  levied  by  a  State  for  a  given  purpose  it 
is  not  for  public  use,  but  when  levied  by  the  national 
Government  for  the  same  or  a  like  purpose  it  is  for  public 
use.  Again,  such  an  assumption  of  unlimited  power  on 
the  part  of  Congress  directly  antagonizes  the  opinions  of 
Chief-Justice  Marshall  (see  page  230)  and  also  the  declara- 
tion, made  in  special  reference  to  the  taxing  power,  by  the 
United  States  Supreme  Court  through  Mr.  Justice  Miller 
in  the  Topeka  case  (page  232),  "  That  the  theory  of  our 
governments,  State  and  national,  is  opposed  to  the  deposit 
of  unlimited  power  anywhere."  Justice  Story  (on  the  Con- 
stitution, section  990)  also  asks  and  answers  the  precise 
question  at  issue:  "Has  Congress  a  right  to  raise  and  ap- 
propriate the  public  money  to  any  and  to  every  purpose 
according  to  their  will  and  pleasure?  They  certainly  have 
not."  The  same  Jurist,  in  his  lectures  on  the  Constitution, 
thus  further  amplified  his  ideas  on  this  subject,  and  evi- 
dently thought  that  he  had  in  the  following  brief  para- 
graphs brought  the  argument  in  support  of  the  "  un- 
limited "  theory  to  a  reductio  ad  ahsurdum. 

"  A  power  to  lay  taxes  for  the  common  defence  and  gen- 
eral welfare  of  the  United  States  is  not  in  common  sense 
a  general  power."  It  is  "  a  power  exclusively  given  to 
raise  revenue,  and  it  can  constitutionally  be  applied  to 
no  other  purpose.  The  application  for  other  purposes  is 
an  abuse  of  the  power;  and  in  fact,  however  it  may  be  in 
form  disguised,  is  a  premeditated  usurpation  of  authority." 
A  grant  under  the  Constitution  to  Congress  "  to  do  any 
act  they  pleased  which  ought  to  be  for  the  good  of  the 
Union  .  .  .  would  reduce  the  whole  instrument  to  a  single 
phase,  that  of  instituting  a  Congress  with  power  to  do 
whatever  would  be  for  the  good  of  the  United  States;  and 
as  they  would  be  the  sole  judges  of  good  or  evil,  it  would 
also  be  a  power  to  do  whatever  evil  they  pleased  "  (1  Story, 
Constitution,  section  926). 

Second,  to  the  assumption  that  the  decisions  of  the 
State  courts  in  respect  to  the  limitations  of  the  power  of 
taxation  do  not  apply  to  this  controversy,  it  was  replied 
that  the  relation  of  the  State  courts  to  their  State  Consti- 
tutions is  substantially  the  same  as  that  existing  between 
the  Federal  Supreme  Court  and  Congress;  that  the  State 
decisions  (which  have  not  been,  as  was  claimed,  "  all  cases 


302    THE  THEORY  AND   PRACTICE  OF  TAXATION. 

of  mimieipal  taxation  ")  frequently  treat  such  legislation, 
independently  of  Constitutions,  as  being  in  violation  of 
natural  right,  and  that  there  are  limitations  imposed  upon 
legislative  power  by  reason  of  "  general  principles "  has 
been  recognised  by  the  United  States  Supreme  Court 
(Bartemeyer  vs.  Iowa,  12  Wallace).  It  would  further  seem 
that  natural  rights  must  be  the  same,  whether  against 
legislation  by  Congress  or  by  the  Legislature  of  a  State. 
If  a  State  can  not  levy  and  expend  taxes  for  other  than 
public  purposes,  it  may  be  presumed,  a  fortiori,  that  the 
national  Government  can  not,  "  for  the  former  can  do 
anything  which  the  Constitution  (and  natural  right)  do 
not  forbid;  while  the  latter  can  do  nothing  which  the 
Constitution  does  not  first  sanction."  The  Federal  Gov- 
ernment has  "  no  right  to  raise  money  by  taxation  for  a 
thousand  things  for  which  the  State  may  impose  taxes 
and  collect  them  of  the  people." — Miller,  Justice,  Lectures 
on  the  Constitution. 

Third,  in  respect  to  the  instances  cited,  in  which  Con- 
gress has  expended  moneys  for  bounties,  or  relief  of  private 
interests,  in  this  and  other  countries,  it  was  replied  that 
they  were  all  matters  of  national  charity;  were  never  sub- 
jected to  judicial  scrutiny,  or  even  seriously  challenged  in 
debate;  w^ere  never  for  large  amounts,  and  did  not  contem- 
plate any  special  levy  of  taxes,  but  were  from  funds  al- 
ready in  the  Treasury.  It  was  also  claimed  that  this  was 
the  first  case  in  which  the  constitutionality  of  a  congres- 
sional bounty,  whether  direct  or  indirect,  for  "  protection," 
has  ever  been  before  the  United  States  Supreme  Court  for 
discussion.  And  pertinent  to  the  case  it  should  be  further 
noted,  that  when  it  was  proposed  in  the  Convention  that 
framed  the  Federal  Constitution  to  incorporate  in  it  a 
provision  for  bestowing  "  rewards  "  for  "  the  promotion 
of  agriculture,"  the  proposition  was  rejected. 

The  facts  about  the  bounty  for  codfisheries  are,  that  it 
was  given  under  the  first  revenue  laws  (levying  duties) 
of  the  United  States  in  1792,  and  was  intended  to  offset 
bounties  and  other  measures  adopted  by  England,  as  was 
believed,  for  the  purpose  of  destroying  the  fisheries,  not 
only  of  the  United  States,  but  also  of  France.  Its  enact- 
ment was  strenuously  resisted  at  the  time,  on  constitu- 
tional grounds,  and  especially  by  as  good  a  constitutional 


BOUNTIES  AND  THE  CONSTITUTION.  303 

authority  as  Madison,  who  held  that  the  enactment  of  a 
bounty  was  beyond  the  power  of  Congress  (4  Elliot's  De- 
bates, Philadelphia  edition,  1875,  525,  526).  Its  legality 
was  never  judicially  examined,  and  the  act  expired  by  its 
own  limitation  in  seven  years.  Subsequent  acts  expressing 
limitation  were  passed  of  the  same  character  from  time 
to  time;  and  since  their  final  expiration,  many  years  ago, 
it  is  claimed  that  no  Congress,  until  the  Fifty-ninth,  1890, 
has  asserted  its  right  to  levy  taxation  embodying  the 
bounty  principle. 

The  court,  in  giving  an  opinion  affirming  the  constitu- 
tionality of  the  tariff  act  of  1890,  evaded  the  question  of 
the  constitutionality  of  its  bounty  provision,  on  the  ground 
that  the  invalidity  of  one  part  of  a  revenue  act  does  not 
invalidate  the  whole  act;  and  when  that  principle  was 
settled,  the  objections  to  the  act  based  on  separate  clauses 
really  disappeared.* 

The  disbursement  of  the  money  voted  by  Congress  for 
the  payment  of  the  sugar  bounties  having  been  withheld 
by  the  Comptroller  of  the  United  States  Treasury  on  the 
ground  that  the  appropriation  was  unconstitutional,  the 
court  held  that  if  Congress  made  promises  and  thereby 
induced  people  to  incur  expenses  which  they  would  not 
otherwise  have  incurred,  and  has  then  appropriated  the 
money  to  indemnify  the  parties,  the  payment  can  not  be 
stopped  by  an  administrative  officer  on  the  ground  of  the 
unconstitutionality  of  the  primary  bounty  enactment. 

A  question  of  interest  in  connection  with  this  case, 
which  may  naturally  suggest  itself,  especially  to  those  not 
learned  in  the  law,  is.  How  happens  it  that  repeated  acts 
of  expenditure  of  money  raised  by  taxation  for  admittedly 
private  purposes  have  been  authorized  by  Congress,  with- 
out any  challenge  before  the  proper  courts  of  their  consti- 
tutionality? The  answer  is  to  be  found  in  the  legal  fact 
that  "  the  question  of  the  constitutionality  of  a  law  can 
never  be  presented  and  determined  abstractly.  It  must 
always  be  raised  by  somebody  whose  person  or  property  is 
affected  by  the  execution  of  the  statute  the  validity  of 

*  One  of  the  best  reviews  of  this  celebrated  ease,  one  to  which 
the  writer  has  been  greatly  indebted,  is  to  be  found  in  an  article 
contributed  to  and  published  in  the  Harvard  Law  Review  for 
February,  1892,  by  Charles  B.  Chamberlain,  Esq.,  of  Boston. 


304    THE  THEORY  AND  PRACTICE  OF   TAXATION. 

which  he  impugns.  Until  the  opportunity  for  raising 
and  the  individual  who  can  raise  the  question  of  constitu- 
tionality present  themselves,  there  can  be  no  presumption 
from  the  existence  of  such  legislation  upon  the  statute- 
book." 

In  Maine,  a  law  which  for  more  than  half  a  century — 
almost  as  long  as  the  State  has  existed — had  been  enforced, 
and  reproduced  in  each  revision  of  the  statutes,  was  de- 
clared unconstitutional  so  soon  as  challenged;  the  chief 
justice  meeting  the  reason  for  such  acquiescence  by  say- 
ing that  "  the  judicial  opinion  and  the  public  sense  were 
not  so  much  awakened  to  the  principle  underlying  this 
then  as  now."  (Brief  of  Smith  and  Clarke,  averring  the 
unconstitutionality  of  the  tariff  act  of  1890.)* 

The  nature,  definition,  and  limitations  of  the  service 
for  public  purposes,  which  a  free  representative  govern- 
ment can  render  or  perform  by  the  expenditure  of  moneys 
raised  by  taxation  having  been  once  ascertained  and  enun- 
ciated by  the  supreme  judicial  authority  of  the  State  (as 
would  seem  to  have  been  done  in  the  United  States),  the 
instant,  thereafter,  that  taxation  essays  to  become  any- 
thing but  taxation — i.  e.,  for  an  unquestionable  public 
purpose;  the  instant  that  it  is  made  an  instrumentality 
for  effecting  any  results  other  than  such  as  are  directly 
necessary  or  beneficial  to  the  whole  public,  that  instant  it 
becomes  inequitable  and  antagonistic  to  the  very  idea  of  a 
just  government;  and  the  citizen  whose  person  or  property 
is  thereby  affected  has  at  least  a  moral  right  to  demand 
protection  and  redress. 

*  "  It  is  by  facts  and  instances  that  the  people  are  tanght  their 
Constitutions  and  their  laws.  Constitutions  are  framed;  laws 
established;  institutions  built  up;  the  processes  of  society  go  on, 
until  at  length,  by  some  opposing,  some  competing,  some  contend- 
ing forces  of  the  State,  an  individual  is  brought  into  the  point 
of  collision,  and  the  clouds  surcharged  with  the  great  force  of 
the  public  welfare  burst  over  his  head." — Speech  of  Mr.  Evarts 
for  the  Defence,  in  the  Impeachment  of  President  Johnson. 


CHAPTEE   XIV. 

RULES  OR  MAXIMS  ESSENTIAL  TO  AN  ADMINISTRATION  OF 
RIGHTFUL  TAXATION  UNDER  A  CONSTITUTIONAL  OR  FREE 
GOVERNMENT. 

PART   II. 

In  continuance  of  the  discussion  entered  upon  in  the 
preceding  chapter,  as  to  whether  under  a  constitutional 
and  free  government,  and  in  virtue  also  of  the  natural 
and  inalienable  rights  of  the  people  governed,  a  state  has 
a  lawful  right  to  levy  and  expend  taxes  in  furtherance 
of  private  interests,  more  especially  by  way  of  bounties, 
the  following  additional  points  may  be  worthy  of  consid- 
eration : 

Probably  no  better  exposition  of  the  limitation  on 
the  exercise  of  the  taxing  power  incumbent  on  a  free 
government  professing  a  regard  for  the  rights  of  the  peo- 
ple, and  more  especially  on  the  Federal  Government  of 
the  United  States,  under  its  Constitution,  in  respect  to 
the  granting  of  payment  of  bounties  for  the  promotion  of 
the  private  interests  of  any  of  its  citizens,  can  be  found 
than  the  following,  accredited  to  Justice  Thomas  M. 
Cooley: 

"  It  is  not  in  the  power  of  the  state,  in  my  opinion, 
under  the  name  of  a  bounty,  or  under  any  other  cover  or 
subterfuge,  to  furnish  the  capital  to  set  private  parties  up 
in  any  kind  of  business,  or  to  subsidize  their  business 
after  they  have  entered  upon  it.  A  bounty  law  of  which 
this  is  the  real  nature,  is  void,  whatever  may  be  the  pre- 
tence on  which  it  may  be  enacted.  The  right  to  hold  out 
pecuniary  inducements  to  the  faithful  performance  of 
public  duty  in  dangerous  or  responsible  positions  stands 
upon  a  different  footing  altogether;  nor  have  I  any  occa- 
sion to  question  the  right  to  pay  rewards  for  the  destruc- 
tion of  wild  beasts  and  other  public  pests,  a  provision  of 

805 


306    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

this  character  being  a  mere  police  regulation.  But  the  dis- 
crimination by  the  state  between  different  classes  of  occu- 
pations, and  the  favouring  of  one  at  the  expense  of  the 
rest,  whether  that  one  be  farming  or  banking,  merchandis- 
ing or  milling,  printing  or  railroading,  is  not  legitimate 
legislation,  and  is  an  invasion  of  that  equality  of  right 
and  privilege  which  is  a  maxim  in  state  government.  When 
the  door  is  once  open  to  it  there  is  no  line  at  which  we  can 
stop  and  say  with  confidence  that  thus  far  we  may  go  with 
safety  and  propriety,  but  no  further. 

"  Every  honest  employment  is  honourable;  it  is  bene- 
ficial to  the  public;  it  deserves  encouragement.  The  more 
successful  we  can  make  it  the  more  does  it  generally  sub- 
serve the  public  good.  But  it  is  not  the  business  of  the 
state  to  make  discriminations  in  favour  of  one  class  against 
another  or  in  favour  of  one  employment  against  another. 
The  state  can  have  no  favourites.  Its  business  is  to  pro- 
tect the  industry  of  all,  and  give  all  the  benefits  of  equal 
laws.  It  can  not  compel  an  unwilling  minority  to  submit 
to  taxation  in  order  that  it  may  keep  upon  its  feet  any 
business  that  can  not  stand  alone." 

A  brief  historical  retrospect  is  here  pertinent  to  this 
subject.  The  payment  of  bounties  from  the  proceeds  of 
taxation,  or  rather  of  exaction,  is  a  relic  of  the  commercial 
methods  of  the  middle  ages.  They  were,  however,  re- 
garded as  legitimate  fiscal  expedients  for  the  encourage- 
ment of  trade  and  domestic  industries  during  the  whole 
of  the  last  (eighteenth)  century;  but  since  then,  under  the 
influence  of  a  higher  civilization  and  modern  economic 
ideas,  have  been  almost  entirely  discarded  from  the  fiscal 
systems  of  the  leading  commercial  nations  until  wdthin  a 
comparatively  recent  period,  when  they  have  been  revived 
and  made  mainly  applicable  to  the  production  and  sale  of 
a  single  one  of  the  world's  great  commodities — namely, 
sugar ;  *  and  the  history  of  this  experience  constitutes 
a  most  interesting  and  instructive  chapter  in  economic 
history. 

Although  the  practice  of  stimulating  the  production  of 

*  The  policy  of  payment  of  bounties  for  the  encouragement  of 
shipping  and  of  shipbuilding  enterprise  has  also,  to  a  limited  ex- 
tent, been  established,  more  especially  by  the  three  Governments 
of  Germany,  France,  and  Italy. 


BOUNTIES  ON  SUGAR.  307 

beet-root  sugar  in  Europe  through  high  protective  duties 
on  imports  and  export  bounties,  direct  or  indirect,  dates 
back  to  the  first  quarter  of  the  century,  the  present  com- 
plicated and  curious  state  of  affairs  is  really  due  to  a 
method  of  taxing  beet  sugar  by  Germany  which  was 
adopted  in  1869.  The  idea  involved  in  this  method  was,  in 
brief,  to  collect  an  excise  or  internal-revenue  tax  on  all 
sugar  produced,  and  by  allowing  a  drawback  on  what  was 
exported,  give  a  bounty  on  so  much  as  was  sold  to  the  peo- 
ple of  other  countries.  The  other  states  of  continental 
Europe,  finding  the  markets  of  their  own  product  of  beet- 
root sugar  everywhere  supplanted  by  the  German  sugars, 
and  their  domestic  manufacturers  being  thereby  brought 
to  the  verge  of  ruin,  made  haste  to  follow  the  example  of 
Germany,  until  the  policy  of  Germany,  France,  Belgium, 
Holland,  Austria,  and  Russia  seems  to  have  been  to  stimu- 
late their  domestic  product  of  sugar  to  the  greatest  extent, 
and  then  enter  into  competition  with  each  other  to  see 
which  of  them  could  sell  cheapest  to  foreigners  at  the  ex- 
pense of  their  own  people.  The  general  result  is,  that  the 
great  beet-sugar  industry  of  Europe  has  been  established 
and  is  now  conducted  on  what  may  be  regarded  as  an  arti- 
ficial basis,  and  one  not  inaptly  characterized  as  a  most  in- 
genious method  for  entailing  money  losses  on  the  mass  of 
the  people  of  the  countries  above  mentioned. 

The  immediate  sequence  of  this  policy  has  been  an 
enormous  increase  in  the  beet-sugar  product  on  the  Conti- 
nent of  Europe— i.  e.,  from  2,223,000  tons  in  1885-'86  to 
nearly  5,000,000  (4,789,000)  tons  in  1895--'96— with  such 
a  reduction  in  price  that  the  whole  sugar  industry  of 
Europe  is  seriously  depressed,  with  a  general  complaint  on 
the  part  of  producers  that  the  amount  received  by  them 
does  not  cover  the  cost  of  production.  Under  such  a  con- 
dition of  affairs,  the  German  Parliament  (Eeichstag),  in 
May,  1896,  accepting  a  popular  declaration  that  "  sugar 
was  the  last  and  only  agricultural  product  in  which  there 
remained  any  profit  for  the  German  farmer,  and  that  what- 
ever skilful  legislation  could  do  to  preserve  and  protect 
that  industry  should  in  justice  to  the  suffering  landowners 
be  given  a  prompt  and  thorough  trial,"  passed  an  act  in- 
creasing the  bounty  on  the  export  of  sugars  to  an  extent 
assumed  to  be  sufficient  "  to  enable  German  exporters  to 


J 


308    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

compete  against  all  comers  in  foreign  markets  ";  advancing 
the  import  duty  on  sugars  to  a  prohibitory  degree ;  and  fix- 
ing an  internal-revenue  tax  on  sugars  to  such  an  extent  as 
to  yield  a  net  income  to  the  state  in  excess  of  its  disburse- 
ments on  account  of  bounties  on  exports.  The  effects  of  the 
new  statute  have  now  become  apparent  and  ominous.  The 
foreign  sugar  market  has  responded  to  the  increased  bounty 
export  by  a  proportionate  decline  in  price;  and  a  move- 
ment soon  found  favour  to  petition  the  Eeichstag  to  make 
certain  amendments  in  the  existing  statute  so  as  to  restrict 
instead  of  stimulating  production,  and  to  invite  interna- 
tional negotiations  for  the  gradual  abolition  of  all  export 
bounties,  which  have  been  proved  to  be  simply  a  burden 
on  the  treasury,  which  pays  them  for  the  benefit  of  non- 
producing  foreign  countries. 

The  present  burden  which  the  sugar-bounty  system  en- 
tails upon  the  taxpayers  of  Europe  is  estimated  at  about 
$25^000,000  per  annum,  while  the  excise  tax  on  sugar  in 
Germany,  France,  and  Austria  is  said  to  amount  to  $100,- 
000,000  per  annum.  On  the  sugar  consumed  by  the  people 
of  the  continental  nations  of  Europe  which  have  adopted 
the  bounty  policy  there  is  no  bounty,  but  on  the  contrary 
an  excise  tax;  the  result  of  which  legislation  is  to  make 
exported  sugars  very  cheap  and  home  (Consumption  abnor- 
mally dear.  This  is  demonstrated  by  reference  to  the  sta- 
tistics of  the  comparative  consumption  of  different  coun- 
tries. Thus  in  England,  whose  policy  since  1874  has  been 
to  give  her  people  sugar  free  of  taxation,  the  per  capita 
consumption  has  risen  from  fifty-six  pounds  in  that  year  to 
eighty-six  pounds  in  1896;  while  the  saving  to  the  British 
\/  people  from  the  reduction  of  the  cost  of  this  one  item  of 
\  their  living  has  been  estimated  to  be  at  least  £6,000,000 
($30,000,000)  per  annum.  The  great  reduction  in  the 
price  of  sugar  has  also  given  a  remarkable  impetus  to  the 
British  industry  of  manufacturing  sweets,  in  the  form  of 
confectionery,  preserves,  jams,  marmalades,  etc.,  which 
last  to  a  considerable  extent  have  undoubtedly  supplanted 
the  use  of  butter.  The  present  annual  average  consumption 
of  sugar  in  Germany  is  reported  to  be  about  twenty-seven 
pounds  per  capita.  In  France  the  declining  consumption 
of  sugar  has  been  made  the  subject  of  recent  debate  in  the 
Chamber  of  Deputies,  where  the  question  was  pertinently 


ABUSE  OF  BOUNTIES.  309 

asked  by  one  of  the  deputies  (M.  Mery)  if  the  object  of 
the  existing  governmental  policy  in  respect  to  sugar  "  was 
mainly  to  produce  it  or  to  have  and  enjoy  it."  The  Agri- 
cultural Society  of  France  has  also  recently  unanimously 
indorsed  a  demand  of  the  French  sugar  rnakers  and  re- 
finers that  the  Government  should  increase  the  present 
bounty  on  the  export  of  sugar  to  an  extent  equivalent  to  the 
combined  or  aggregate  bounties  allowed  in  Austria  and 
Germany. 

So  much,  then,  for  nearly  half  a  century's  experience 
on  the  part  of  the  leading  continental  nations  of  P^urope 
in  attempting  to  regulate  the  production,  price,  and  con- 
sumption of  sugar  through  a  system  of  bounties.* 

Practical  experience  in  respect  to  the  employment  of 
bounties  also  leads  to  a  deduction,  which  may  be  almost 
regarded  in  the  nature  of  a  principle,  that  when  bounties 
are  employed  for  the  promotion  of  some  public  good,  the 
object  sought  eventually  becomes  subordinate  to  the  op- 
portunity which  an  unnatural  and  unprincipled  perversion 
of  the  bounty  provisions  affords  for  the  promotion  of  pri- 
vate rather  than  public  interests.  The  following  illustra- 
tions, though  somewhat  comical  in  their  nature,  serve  to 
sustain  this  proposition: 

In  the  early  years  of  the  present  century  the  State 
of  Connecticut,  having  in  view  the  promotion  of  its  agri- 
cultural interests,  offered  a  premium  on  the  destruction 
of  the  crow;  to  be  paid  on  the  production  of  the  head  of 
the  bird  to  the  proper  authorities.  Thereupon  the  sons 
of  the  farmers,  desirous  of  earning  a  little  money,  then 
much  more  difficult  to  obtain  than  at  present,  diligently 
searched  the  woods  for  the  nests  of  crows,  from  which  at 
the  proper  time  the  eggs  were  transferred  to  sitting  hens, 
by  whom  they  were  hatched  and  the  resulting  offspring 
brought  up  until  their  heads  became  available  for  pres- 
entation and  procurement  of  the  bounty.  A  summary  of 
the  general  results  of  such  experience  would  be  somewhat 
as  follows :  First,  a  perversion  of  the  legitimate  industry 
of  the  hen;  second,  an  elementary  lesson  for  young  per- 
sons in  perpetrating  frauds  against  the  State;  third,  an 
impairment  of  the  agency  of  a  bird,  whose  habits  have  been 

*  See  my  Recent  Economic  Changes,  p.  296. 


310    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

proved  by  subsequent  scientific  investigations  to  be  bene- 
ficial ratlier  than  detrimental  to  the  interests  of  the 
farmers.  Again,  in  the  early  history  of  one  of  the  North- 
western States  of  the  Federal  Union  a  bounty  was  offered, 
at  the  request  of  the  farmers,  for  the  heads  of  little  bur- 
rowing animals  known  as  "  gophers,"  which  attracted  little 
attention  till  the  experience  of  several  years  showed  that 
the  disbursements  of  the  State  on  this  account  had  become 
abnormal  and  were  rapidly  increasing.  Investigation  then 
proved  that  the  raising  of  gophers  by  citizens  of  the  State 
for  the  procurement  of  bounties  had  become  a  regular 
industry.  A  like  experience  in  British  India  is  also  worthy 
of  note.  Some  years  since  the  Government,  with  a  view 
of  arresting  the  mortality  among  its  native  population  from 
the  bites  of  poisonous  serpents,  offered  a  bounty  on  their 
proved  destruction;  when  it  was  found  that  for  the  sake 
of  obtaining  the  bounties  the  cultivation  of  the  "  cobra  " 
and  other  like  snakes  had  been  actually  entered  upon. 

Third.  The  sphere  of  taxation  should  he  limited  to  per- 
sons, property,  and  business  exclusively  within  tlie  territorial 
jurisdiction  of  the  taxing  power.  It  would  seem  to  be  in 
the  nature  of  a  self-evident  proposition,  although  in  fact 
it  is  by  no  means  so  regarded,  that  the  power  of  every 
state  or  government  to  tax  must  be  exclusively  limited  to 
subjects  within  its  territory  and  legal  jurisdiction.  "  All 
subjects,^'  says  Chief-Justice  Marshall,  in  giving  the  opin- 
ion of  the  Supreme  Court  in  the  case  of  McCulloch  vs. 
Maryland  (4  Wheaton,  431),  "  over  ivhich  the  sovereign 
power  of  the  state  extends  are  objects  of  taxation;  but  those 
over  ivhich  it  does  not  extend  are,  on  the  soundest  principles, 
exempt  from  taxation."  And  again :  "  The  sovereign  power 
of  the  state  extends  to  everything  which  exists  by  its  own 
authority  or  is  introduced  by  its  permission."  "  Every  na- 
tion," says  Wheaton,  "  possesses  and  exercises  exclusive 
sovereignty  and  jurisdiction  throughout  the  full  extent  of 
its  territory.  It  follows,  from  this  principle,  that  the  laws 
of  every  state  control,  of  right,  all  the  real  and  personal 
property  within  its  territory.  The  second  general  prin- 
ciple is,  that  no  state  can,  by  its  laws,  directly  affect,  bind, 
or  regulate  property  beyond  its  own  territory.  This  is  a 
consequence  of  the  first  general  principle;  a  different  sys- 
tem, which  would  recognise  in  each  state  the  power  of 


TAXATION  AND  SOVEREIGNTY. 


311 


regulating  persons  or  things  beyond  its  territory,  would 
exclude  the  equality  of  rights  among  different  states,  and 
the  exclusive  sovereignty  which  belongs  to  each  of  them." 
(Wheaton's  International  Law,  chap,  ii,  §  2;  Foelix,  Traite 
du  Droit  International  Prive,  §§  9  and  10.)  And  in  a  de- 
cision of  more  recent  date  (State  Tax  on  Foreign-held 
Bonds,  15  Wallace,  306,  338),  the  United  States  Supreme 
Court  said:  "  The  power  of  taxation,  however  vast  in  its 
character  and  searching  in  its  extent,  is  necessarily  limited 
to  subjects  tvithin  the  jurisdiction  of  the  state.  Property 
lying  beyond  the  jurisdiction  of  the  state  is  not  a  subjeci 
upon  which  her  taxing  power  can  he  legitimately  exercised. 
Indeed,  it  would  seem  that  no  adjudication  should  be  ne- 
cessary to  establish  so  obvious  a  proposition." 

The  principle  under  consideration  has  also  been  made 
the  subject  of  adjudication  by  the  United  States  Supreme 
Court  in  a  case  of  historic  as  well  as  of  legal  and  economic 
■interest.  In  September,  1811,  the  country  being  then  at 
war  with  Great  Britain,  the  town  of  Castine,  in  Maine,  w^as 
captured  by  the  British  forces,  and  remained  in  their  ex- 
clusive possession  until  after  the  ratification  of  peace  in 
1815.  During  this  period  the  British  Government  exer- 
cised all  civil  and  military  authority  over  the  place,  estab- 
lished a  custom  house  and  allowed  merchandise  to  be  im- 
ported, some  of  which  remained  in  Castine  after  it  was 
evacuated  by  the  enemy.  On  the  re-establishment  of  the 
authority  of  the  United  States,  the  American  collector  of 
customs  for  the  district,  claiming  a  right  on  the  part  of 
the  United  States  to  Federal  duties  on  the  goods  in  ques- 
tion, demanded  payment  of  the  same  from  the  owners  or 
importers;  and,  the  claim  being  resisted,  the  case  went 
up  to  the  United  States  Supreme  Court,  which  with  com- 
plete unanimity  gave  judgment,  through  Justice  Story, 
for  the  owners  or  importers  in  the  following  language: 

"  We  are  all  of  the  opinion  that  the  claim  for  duties 
can  not  be  sustained.  By  the  conquest  and  military  occu- 
pation of  Castine,  the  enemy  acquired  that  firm  possession 
which  enabled  him  to  exercise  the  fullest  rights  of  sov- 
ereignty over  that  place.  The  sovereignty  of  the  United 
States  was  suspended,  and  its  laws  could  no  longer  be 
enforced  there,  or  be  obligatory  on  the  inhabitants  who  re- 
mained there  and  submitted  to  the  conquerors.     By  the 


A 


312     THE   THEORY  AND   PRACTICE   OF   TAXATION. 

surrender  the  inhabitants  passed  under  a  temporary  alle- 
giance to  the  British  Government,  and  were  bound  by 
such  laws  and  such  only  as  it  chose  to  impose.  From  the 
nature  of  the  case,  no  other  laws  could  be  obligatory  on 
them;  for  ichere  there  is  no  protection  or  allegiance,  or  sover- 
eignty, there  can  be  no  claim  to  obedience." 

Taxes,  therefore,  are  necessarily  the  creation  of  each 
state,  and  no  self-respecting  Government  ever  permits  any 
other  Government  to  interfere  with  its  tax  laws  or  their 
execution,  and  a  toleration  of  such  interference  in  any 
clegree  presupposes  dependence,  subjection,  or  absence  of 
independence.  An  obvious  co-relation  of  this  proposition, 
and  also  a  matter  of  fact,  is  that  a  violation  of  the  tax 
or  revenue  laws  of  one  country  has  never  been  regarded  as 
an  offence  or  crime  in  any  other  country;  and  the  English 
courts  have  held  that  contracts  to  evade  the  customs  laws 
of  a  foreign  country  are  not  illegal.  Hence,  also,  offenders 
in  this  respect  are  never  taken  into  account  in  extradition 
treaties  between  different  nations  and  their  governments. 
Some  years  ago  a  United  States  district  attorney  in  New 
York  procured  through  the  Department  of  State  at  Wash- 
ington the  extradition  of  a  person  from  England  on  the 
charge  of  forgery.  On  his  arraignment  before  a  United 
States  court  it  transpired  that  the  offence  committed  was 
the  manufacture  and  use  of  fraudulent  invoices,  to  which 
forged  or  fictitious  names  had  been  attached,  for  the  pur- 
pose of  evading  the  payment  of  United  States  customs  or 
taxes  on  certain  imports;  and  that  the  intent  of  the  prose- 
cution was  punishment,  not  for  forgery  in  the  ordinary 
sense  of  the  term,  but  for  smuggling,  for  which  latter 
offence  there  was  no  precedent  that  extradition  had  ever 
been  granted  by  any  country.  The  attention  of  the  Brit- 
ish Government  having  been  called  to  the  case,  a  request 
was  preferred  by  it  to  the  authorities  in  Washington  that 
the  trial  of  the  accused  should  be  discontinued,  on  the 
ground  that  a  fugitive  from  justice,  when  surrendered  by 
a  country  in  which  he  had  sought  refuge,  should  not  be 
tried  for  any  offence  other  than  the  one  specified  in  the 
extradition  demand,  and  for  which  extradition  was 
granted.  Compliance  with  the  request  being  refused,  al- 
though as  a  matter  of  fact  the  trial  was  discontinued,  the 
British  Government  took  occasion,  when  extradition  was 


TAXATION  OF   FOREIGNERS.  313 

next  demanded  of  her  by  the  United  States — which  hap- 
pened to  be  the  case  of  a  former  well-known  citizen  of 
Boston  who  had  committed  forgery  in  the  sense  that  con- 
stitutes a  crime  in  all  countries — to  refuse  it,  although  the 
offender  had  in  the  first  instance  been  arrested  in  Eng- 
land and  was  in  custody;  and  for  many  years  subsequent 
and  for  reasons  above  given  there  was  no  extradition  in 
force  between  the  United  States  and  Great  Britain  and  her 
colonies,  with  the  result  of  making  Canada  an  Alsatia,  or 
place  of  safe  refuge,  for  all  criminals  of  the  former 
country.* 

All,  therefore,  that  any  government  can  legitimately 
ask  of  another  government  in  respect  to  taxation  is,  that 
its  subjects  or  citizens  residing  in  such  foreign  state  shall 
not  be  there  discriminated  against  because  they  are  for- 
eigners; but  shall  be  treated  in  exactly  the  same  manner 
as  the  subjects  or  citizens  of  the  taxing  power  and  their 
property  are  treated — no  better  and  no  worse.  If  for- 
eigners feel  aggrieved,  they  must  first  exhaust  all  the 
remedies  against  unjust  taxation  provided  by  the  insti- 
tutions of  the  taxing  country;  as  foreign  importers,  for 
example,  aggrieved  by  rulings  or  appraisements  at  the 
custom  houses  of  any  country,  must  first  appeal  for  redress 
to  the  courts  of  such  country.  A  recent  event  of  great 
economic  and  legal  importance  is  also  worthy  of  narration 
and  consideration  in  this  connection. 

A  board  of  appraisers  and  assessors  charged  with  the 
duty  of  assessing,  for  the  purpose  of  taxation,  the  property 
in  Ohio  of  telegraph,  telephone,  and  express  companies, 
discharged  the  duties  incumbent  upon  it — taking  an  ex- 
press company  for  example — in  the  following  manner: 
First,  by  determining  the  value  and  liability  to  taxation 
of  the  real  estate  of  the  company  situated  in  Ohio;  second, 
the  personal  property,  including  moneys  and  credits,  owned 
by  the  company  in  Ohio,  and  the  value  thereof;  third, 
the  gross  receipts  during  the  taxing  year  of  the  company 
in  Ohio,  from  whatever  sources  derived.  It  was  conceded 
that  the  returns  made  by  the  company  to  the  above 
officials  were  correct,  and  that  the  aggregate  value  of  the 

*  These   cases   of  Lawrence   and  Winslow  are  fully  treated   in 
Wharton's  Digest  of  International  Law,  §  270. 
21 


314    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

items  included  in  such  returns  liable  to  taxation  in  1895 — 
the  same  as  other  like  property  in  the  State — was  $-12,065. 
The  board  of  appraisers  and  assessors  added,  however,  to 
this  amount  the  sum  of  $191,030,  making  the  aggregate 
of  the  tax  liability  of  the  express  company  $533,095;  and 
based  their  action  not  on  any  belief  or  pretence  that  any 
considerable  amount  of  real  or  personal  property  within 
the  territorial  jurisdiction  of  the  State  had  been  discov- 
ered which  had  hitherto  escaped  taxation,  but  that  sources 
of  reported  value  which  were  entirely  outside  of  the  terri- 
tory and  beyond  the  jurisdiction  of  the  State  of  Ohio — 
when  they  constituted  a  part  of  the  value  of  the  capital 
or  franchise  of  a  corporation  located  and  established  in 
some  other  State  for  the  purpose  of  carrying  on  business, 
and  that  business  "  interstate  commerce  "  entirely  within 
the  control  of  the  Federal  Government — might  be  added 
to  the  intrinsic  value  of  property  within  the  State;  thereby 
assessing  not  only  property  within  the  State  of  Ohio,  but 
a  proportion  also  of  all  property  situated  ivithout  its  ter-* 
ritorial  boundaries.  The  question  involved  was  therefore 
the  constitutionality  of  extra-territorial  taxation;  and  the 
case,  after  consideration  by  State  and  United  States  Circuit 
Courts,  was  finally  brought  before  the  United  States  Su- 
preme Court.  Here,  notwithstanding  the  citation  of  nu- 
merous former  opinions  and  judgments  of  the  court  wholly 
adverse  to  the  constitutionality  of  the  principle  on  which 
was  based  the  assumption  and  action  of  the  State  of  Ohio, 
the  court  by  a  majority  of  one  held  to  a  contrary  view; 
and  gave  judgment  in  support  of  the  State  assessments  on 
the  express  company.*  It  is  clear,  therefore,  that  the 
State  of  Ohio  has  been  justified,  for  the  time  being,  in 
an  attempt  to  tax  something  that  it  calls  property,  but 
which  is  neither  tangible  nor  visible;  that  has  no  intrinsic 
or  essentially  inherent  value;  and  which  procedure,  if  gen- 
erally accepted  and  put  in  practice  by  other  States,  would 
antagonize  all  formerly  accepted  theories  and  legal  de- 
cisions in  respect  to  extra-territorial  taxation,  and  ulti- 
mately destroy  all  interstate  commerce  between  the  sev- 
eral States  of  the  Federal  Union. 


*  See  the  decision  of  the  court  in  Adams  Express  Company  vs. 
Ohio  State  Auditor,  165  U.  S.,  194. 


TAXATION  AND  PROTECTION.  315 

An  Implied  but  Fundamental  Eecipeocal  of  Taxa- 
tion.— Notwithstanding  the  absence  of  any  warrant  for 
assuming  that  there  was  ever  any  real  or  implied  contract, 
whereby  a  State  in  its  beginning  or  development  agreed 
to  give  a  certain  amount  of  protection  to  life  and  property 
in  return  for  an  equivalent  in  money,  goods,  or  services  of 
its  citizens — an  assumption  which  has  been  characterized 
as  the  "  commercial  theory  of  taxation  "  * — it  is  neverthe- 
less true  that  the  "  co-relative  "  or  "  reciprocal "  of  taxa- 
tion is  protection;  or,  in  other  words,  according  to  the 
political  theory  of  our  governments,  national  and  State,  -  \/^ 
and  in  fact  of  every  government  claiming  the  title  to  be  f)  '-^V 
free,  taxes  may  be  legitimately  assumed  to  be  the  cora-^ot* 
pensation  which  persons  and  property  pay  the  State~For 
protection.  This  assumption,  it  is  believed,  has  been  in- 
dorsed and  accepted  by  every  writer  of  repute  on  economic 
subjects  who  has  discussed  taxation  from  the  time  of 
Montesquieu  down  to  a  very  recent  period;  f  and  in  the 

*  "  The  right  of  a  State  to  take  the  citizen's  property  must  be 
put  on  higher  ground  if  it  is  to  stand  on  perfectly  safe  ground. 
Of  course,  such  higher  ground  is  not  to  be  found  in  the  pretence 
that  the  right  in  question  is  the  simple  right  of  might;  that  the 
ruling  power,  whether  monarch  or  majority,  is  physically  able 
to  take  and  apply  as  it  chooses  all  that  the  individuals  ruled  over 
called  their  own :  and  that  because  it  can,  it  morally  may,  take 
whatever  part  it  thinks  fit.  With  simple  ethics  the  leviers  of 
taxes,  whenever  they  are  a  distinct  class,  are  wont  to  content 
themselves.  But  whatever  countenance  they  have  received  from 
such  moral  philosophers  as  venerate  successful  force,  the  principle 
will  hardly  serve  those  who  study  the  matter  as  taxpayers." — 
Theodore  Bacon. 

t  "  The  philosophy  of  our  plan  of  voluntary  political  associa- 
tion is,  that  all  individuals,  and  all  the  values  within  a  com- 
munity, shall  aggregate  into  one  mass  all  the  power  which  they 
separately  contain,  which  sum  total  shall  constitute  a  sovereignty 
of  the  whole.  This  sovereignty — the  soul  of  the  State,  which  can 
not  be  impaired  and  the  State  survive — reflects  back  upon  its  con- 
stituents, in  detail,  all  that  it  has  received  from  them.  What  it 
receives,  and  what  it  returns,  is  of  two  kinds,  as  to  both  source 
and  object,  viz.,  indivic^ial  service  to  the  Government,  and  pro-  < 
tection  to  the  individual  from  it.  Thus,  in  his  individual  capacity, 
a  man  is  bound  to  perform  military  service,  and  the  State,  by  the 
military  arm,  is  bound  to  protect  him  from  invasion.  He  is  bound 
to  do  jury  duty,  and  the  authorities  are  bound,  upon  his  demand, 
to  provide  him  a  jury.  He  is  bound  to  aid  the  sheriff,  and  the 
sheriff  is  bound  to  execute  process  in  his  favour  by  posse  comitatus, 


316     THE   THEORY   AND   PRACTICE   OF   TAXATION. 

repeated  instances  in  which  this  matter  has  come  before 
the  courts  for  adjudication,  the  highest  judicial  authorities 
have  uniformly  given  judgment  or  expressed  opinions  to 
the  same  effect.  In  confirmation  of  these  statements  the 
following  citations  are  submitted: 

Montesquieu,  writing  with  the  monarchical  institutions 
of  France  mainly  or  solely  in  view,  discusses  this  subject  in 
his  Spirit  of  Laws  (book  xxxi,  chap,  i),  as  follows:  "  The 
public  revenues  are  a  portion  that  each  subject  gives  of 
his  property,  in  order  to  secure  or  enjoy  the  remainder." 

"  The  right  to  tax  an  individual  results  from  the  gen- 
eral protection  afforded  to  himself  and  his  property." — 
Vattel,  Law  of  Nations,  hook  i,  chap.  xx. 

"  Property  and  law  (i.  e.,  government  or  the  state)  are 
born  together  and  die  together.  Before  laws  were  made, 
there  was  no  property;  take  away  laws,  and  property 
ceases." — Bentham,  Theory  of  Legislation. 

"  Where  there  is  no  protection,"  said  Judge  Story  (in 
the  case  of  the  United  States  vs.  Kice,  4  Wheaton,  276), 
"  there  can  be  no  claim  to  allegiance  or  obedience."  Again 
the  same  eminent  authority  (in  the  case  of  Miles  vs. 
Duryea,  Cranch,  481)  thus  strongly  expresses  himself:  "  It 
is  an  eternal  principle  of  justice  that  jurisdiction  can  not 
be  justly  exercised  by  a  State  over  property  that  is  not 
within  reach  of  its  process — that  is,  property  which  it  can 
not  protect." 

"  Taxes  are  a  portion  which  each  individual  gives  of 
his  property,  in  order  to  secure  and  have  the  perfect  enjoy- 
ment of  the  remainder.  Governments  are  established  for 
the  protection  of  persons  and  property  within  the  limits  of 
the  State,  and  taxes  are  levied  to  enable  the  government  to 
afford  and  give  such  protection.     They  are  the  price  and 

if  necessary.  These  personal  services  correspond  to  those  which 
in  feudal  times  the  mesne  lord,  holding  a  frank  tenement,  owed 
the  lord  paramount.  They  can  not  be  compounded  for,  for  their 
value  consists  in  their  being  rendered  in  kind.  Their  perforniance 
is  the  only  price  which  the  citizen  pays  ffir  his  citizenship.  The 
terms  are  not  only  consistent  and  harmonious  with  our  general 
scheme  of  government,  but  are  highly  politic.  To  all  political 
privileges  we  admit  each  one  by  virtue  of  his  being  a  man,  free 
born,  and  of  lawful  age;  we  ask  him  nothing  concerning  his  prop- 
erty, unless  his  property  asks  something  from  us." — Lowrey,  Argu- 
ment, New  York  Assembly,  1862. 


PROTECTION  OF  PERSONS  AND  PROPERTY.   317 

consideration  of  the  protection  afforded."      (Ingersol,  J., 
Circuit  Court  of  the  United  States,  Duer  vs.  Small.) 

"  There  is  nothing  poetic  about  tax  laws.  When  they 
find  property,  they  claim  a  contribution  for  its  protection." 
(Lowrie,  Chief  Justice,  Tinley  vs.  The  City,  etc.,  32  Penn., 
381.) 

The  principle  here  involved  is  also  clearly  and  suc- 
cinctly further  expressed  in  the  following  citations: 

"• '  Taxation '  is,  in  any  view,  taking  private  property 
for  public  use,  and  it  can  not  be  so  taken  without  an 
equivalent,  both  as  to  the  Government  or  the  citizens.  It 
is  not  competent  to  convert  private  property  to  public  use 
by  way  of  taxation,  and  without  compensation,  any  more 
than  by  any  other  mode. 

"  Taxation  (if  anything  in  the  nature  of  principle  is 
assumed  as  its  basis)  therefore  implies  that  the  government 
imposing  it  will  return  an  equivalent.  But  to  return  an 
equivalent  in  the  form  that  was  taken,  namely,  money, 
would  be  stultification.  The  only  equivalent  that  a  gov- 
ernment can  return,  and  the  only  one,  in  truth,  that  justi- 
fies taxation,  is  in  the  nature  of  a  guarantee  that  the  per- 
son, property,  or  business  on  which  the  tax  is  imposed  shall 
have  all  the  rights  which  the  civilization  of  the  State  repre- 
sents, or,  in  other  words,  '  protection.'  " — Redfield. 

" '  If  it  were  practicable  to  do  so,'  says  Justice  Cooley,\ 
'  the  taxes  levied  by  any  government  ought  to  be  appor-  \ 
tioned  among  the  people  according  to  the  benefit  which  1  r\r\yX/' 
each  receiA^es  from  the  protection  the  government  affords  J  ^J  )\y 
him.     This  is  upon  the  assumption,  never  wholly  true  in  ^  l*^ 
point  of  fact,  but  sufl'ciently  near  the  truth  for  the  prac- 
tical operations  of  government,  that  the  benefit  received 
from  the   government  is  in  proportion   to   the   property 
held   or  the   revenues   enjoyed   under   its   protection.' " — 
CooJey,  on  Taxation,  pp.  IJ/^-ll. 

ISTotwithstanding  this  preponderance  of  opinion,  argu- 
ment, and  legal  decisions  in  favour  of  the  correlation  of 
taxation  and  protection,  the  truth  of  this  assumption  has 
been  called  in  question  in  recent  years,  and  even  wholly 
denied  by  some  economic  and  legal  authorities.  Thus,  in 
most  of  the  States  of  the  Federal  Union  (but  not  in  other 
countries),  sovereignty  in  respect  to  taxation  is  assumed,  or 
enacted  to  embrace  "  goods,  chattels,  money,  and  effects. 


318    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

wherever  they  are;  ships,  public  stocks  and  securities,  stocks 
in  turnpikes,  bridges,  and  moneyed  corporations,  within  or 
without  the  State";  and  where  the  administrators  of  the 
law  tax  residents  for  personal  property,  even  of  a  visible, 
tangible  character,  having  a  situs  in  another  State  or 
country;  and,  by  another  irreconcilable  rule,  tax  non-resi- 
dents for  all  of  their  personal  property  having  a  situs 
within  the  State. — Massachusetts  Statutes. 

Such  antagonism  would  seem  to  be  wholly  due  to  an 
inadequate  comprehension  of  the  subject.  It  is  assumed, 
for  example,  that  there  can  be  no  necessary  reciprocity 
of  the  nature  indicated  between  the  State  and  the  subjects 
of  taxation,  because,  in  the  case  of  subjects — persons, 
property,  and  business — upon  which  no  tax  is  levied,  there 
can  be  no  correlation,  and  therefore  no  claim  whatever  for 
protection;  and  in  illustration  and  support  of  this  proposi- 
tion it  is  pointed  out  that  churches  and  other  public  insti- 
tutions, specifically  exempt  from  taxation,  need  and  re- 
ceive as  much  protection  from  the  State  as  structures  used 
for  dwellings  and  stores,  and  that  tramps,  who  have  noth- 
ing to  pay  with,  are  equally  entitled  to  invoke  and  use  the 
power  of  the  State  for  protection  as  those  who  are  taxed 
for  millions.  "  So  also  the  business  that  is  not  taxed  at  all, 
it  is  said,  can  no  more  be  plundered  with  impunity  than 
that  which  is  taxed  the  heaviest."  *  The  error  in  all  this 
reasoning  is  fundamental,  and  arises  from  a  failure  to 
comprehend  that  in  every  civilized  state  every  person  or 
"Nthing  is  taxed,  either  directly  or  indirectly,  by  the  diffu- 
sion of  taxes,  and  that  it  is  not  possible  to  name  anything 
in  such  a  State  that  is  exempt  from  taxation  ;  that  the  pri- 
mary pur[)()S('  for  which  the  State  exists  is  to  aft'ord  protec- 
tion to~ persons  and  property;  that  it — the  State — practi- 
cally"ceases  to  exist  when  it  is  unwilling  or  unable  to  afford 
such  protection  ;  and  that,  even  if  willing,  it  could  not  pro- 
tect, except  through  the  ability  that  comes  to  it  in  the 
possession  of  the  power  and  the  exercise  of  taxation. 

Fourth.  Taxes  should  he  reasonable,  regular,  and  not 
arbitrary  as  respects  method,  time,  and  place  of  assessment 
and  payment,  and,  above  all,  proportional. 

*  The  claim   or  argument  in  defence  of  extra-territorial   taxa- 
tion will  be  more  fully  considered  hereafter. 


CERTAINTY  OF  TAXATION.  319 

The  justice  and  the  necessity  of  these  conditions  as 
essentials  of  a  true  system  of  taxation  ought  to  command 
universal  assent  without  argument.  Adam  Smith  held  to 
the  opinion,  "  founded,"  as  he  says,  "  on  the  experience  of 
all  nations,  that  the  certainty  of  what  each  individual 
ought  to  pay  is,  in  taxation,  of  so  great  importance  that  a 
very  considerable  degree  of  inequality  is  not  near  so  great 
an  evil  as  a  small  degree  of  uncertainty."  The  evil  of 
uncertainty  does  not,  however,  often  characterize  the  tax 
systems  of  the  United  States,  except  in  the  case  of  taxa- 
tion by  the  Federal  Government  of  imports,  when  rates 
(customs)  are  sometimes  held  for  considerable  periods  in 
abeyance  Jay  reason  of  political  antagonisms  of  legislators. 
One  of  wie  most  remarkable  examples  of  this  occurred 
during  the  months  from  December,  1893,  to  August,  1894, 
when  the  uncertainty  as  to  the  prospective  rates  on  im- 
ported merchandise  occasioned  great  stagnation  of  busi- 
ness in  the  United  States,  with  inevitable  great  contingent 
losses.  Another  even  more  striking  illustration  of  the 
evils  of  uncertainty  in  taxation  is  to  be  found  in  the  re- 
cent (1897)  proposition  to  subject  merchandise,  imported 
in  strict  conformity  with  established  laws  and  rates  at  the 
time  of  importation,  to  the  retroactive  incidence  of  in- 
creased taxes,  not  certain  but  prospective  in  respect  to 
rates,  and  not  enacted  or  embodied  in  the  form  of  statute 
laws.  Such  action  is  in  the  nature  of  an  arbitrary  fine  or 
penalty,  and  not  taxation,  and  probably  does  not  find  a 
parallel  in  the  history  of  any  civilized  nation,  and  would 
not  now  be  tolerated  in  any  of  the  most  despotic  govern- 
ments of  Europe.* 

*  A  somewhat  similar  subterfiijre  was  resorted  to  under  the 
Tariff  Act  of  July  24,  1897.  The  bill  passed  both  Houses  of  Con- 
gress, and,  going  to  the  President,  received  his  signature  at  six 
minutes  past  four  of  the  afternoon  of  July  24th.  The  Treasury 
set  up  the  claim  that  the  new  act  became  operative  from  the 
earliest  moment  of  the  day  on  which  it  received  the  sisrnature 
of  the  President — namely,  at  twelve  o'clock  midnight  of  July  2.3, 
1897.  This  claim  was  based  upon  a  general  rule  of  law  which 
does  not  permit  fractions  of  a  day  to  be  considered.  The  word- 
ing of  the  act  was  in  unmistakable  terms,  and  the  phrase  "  on 
and  after  the  passage  of  this  act,"  or  "  on  and  after  the  day  when 
this  act  shall  go  into  effect,"  left  no  doubt  as  to  the  meaning  of 
the  measure.  An  early  case,  decided  in  February,  181.5  (Arnold 
vs.  United  States),  involved   a  question   of  import  duties  arising 


320    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

The  term  proportional,  which  is  largely  used  in  con- 
stitutional provisions  and  in  statutes  relating  to  taxation, 
has,  however,  a  meaning  so  much  broader  and  of  such 
greater  significance  than  is  generally  attributed  to  it  by 
law-makers  and  even  law  interpreters,  tliat  it  is  worth 
while  to  institute  an  inquiry  and  endeavour  to  understand 
clearly  what  it  does  mean.  Scientifically  considered,  it 
means  the  making  of  the  burden  of  taxation  equal  upon  all 
subjects  of  immediate  competition.  This  principle  is  one  of 
the  prime  essentials  of  taxation,  and  when  it  is  violated 
the  act  of  taking,  or  the  enforced  contribution,  is  not 
entitled  to  be  considered,  taxation,  but  becomes  at  once 

under  a  tariff  act  approved  July  1,  1812,  the  importation  being 
made  on  the  same  day.  The  act  imposed  an  additional  duty  of 
one  hundred  per  cent  on  all  merchandise  "  which  shall,  from  and 
after  the  passing  of  this  act,  be  imported  into  the  United  States 
from  any  foreign  port  or  place."  The  court  ruled,  through  Justice 
Story,  that  "the  statute  was  to  take  eflfect  from  its  passage;  and 
it  is  a  general  rule  that,  when  the  computation  is  to  be  made  from 
an  act  done,  the  day  on  which  the  act  is  done  is  to  be  included." 
No  question  was  raised,  however,  as  to  the  precise  hour  the  act 
was  signed  by  the  President  or  when  the  cargo  arrived.  In  a  much 
later  case  (Louisville  vs.  Savings  Bank,  104  United  States,  469, 
475)  Justice  Harlan,  after  reviewing  former  decisions,  admitted 
that  there  were  established  exceptions  to  the  general  rules,  and 
"  it  can  not  be  doubted  that  the  court  may,  when  substantial  jus- 
tice requires  it,  ascertain  the  precise  hour  when  a  statute  took 
effect  by  the  approval  of  the  Executive."  As  one  of  the  latest 
decisions  of  the  highest  court  this  one  is  important,  and,  quoting 
from  an  Illinois  case  (Grosvenor  vs.  Magill,  37  111.,  239),  the  court 
said: 

"  It  is  true  that  for  many  purposes  the  law  knows  no  divisions 
of  a  day;  but  whenever  it  becomes  important  to  the  ends  of  jus- 
tice, or  in  order  to  decide  upon  conflicting  interests,  the  law  will 
look  into  fractions  of  a  day  as  readily  as  into  the  fractions  of 
any  other  unit  of  time  (2  Blackstone  Com.,  140,  notes).  The  rule 
is  purely  one  of  convenience,  which  must  give  way  whenever  the 
rights  of  parties  require  it.  There  is  no  indivisible  iinity  about 
a  day  which  forbids  us,  in  legal  proceedings,  to  consider  its  com- 
ponent hours,  any  more  than  about  a  month,  which  restrains  us 
from  regarding  its  constituent  days.  The  law  is  not  made  of  such 
unreasonable  and  arbitrary  rules." 

That  such  a  ruling  is  consistent  with  sound  reason  and  public 
policy  has  the  support  of  the  leading  authorities  in  legal  writing. 
"  Common  sense  and  common  justice  equally  sustain  the  pi'oposi- 
tion  of  allowing  fractions  of  a  dav  whenever  it  will  promote  the 
purposes  of  substantial  justice.  The  time  of  the  approval  of  an 
act  is  a  question  of  fact.     The  Constitution  declares  that   to   be 


PROPORTIONAL  TAXATION.         321 

an  arbitrary  spoliation  or  confiscation.  Thus,  to  illustrate: 
Suppose  it  were  proposed  to  tax  the  stock  in  trade  of  red- 
haired  men  five  per  cent,  and  those  of  red-nosed  men  ten 
per  cent;  or,  as  was  provided  in  the  income-tax  law  enacted 
by  the  Congress  of  the  United  States  of  1894:,  which  ex- 
empted incomes  below  four  thousand  dollars  per  annum 
from  taxation  and  taxed  all  above  that  sum  two  per  cent; 
or  to  do  as  actually  once  was  done  in  England,  under  an 
income-tax  law  enacted  in  1691,  tax  Catholics  at  rates 
double  those  imposed  on  Protestants;  it  seems  clear  that 
such  transactions  could  not  involve  any  principle  or  be  re- 
garded in  any  other  light  than  the  mere  arbitrary  and 
despotic  exercise  of  power;  or  the  making  of  the  possession 
of  a  red  nose  or  red  hair,  or  the  result  of  enterprise,  skill, 
economy,  or  the  fortuitous  circumstance  of  birth  or  belief, 
the  occasion  for  inflicting  a  penalty.  Yet  this  was  what 
substantially  was  done  in  the  middle  ages,  when  nobles 
were  exempt  from  taxation  because  they  were  nobles,  and 
the  common  people  were  taxed  because  they  were  villeins 
or  bondmen;  when  Jews  were  assessed  because  they  were 
not  Christians,  and  Catholics  because  they  were  not  Prot- 
estants. 

the  time  when  the  law  takes  effect.  This  act  of  approval  can  not 
look  backward,  and  by  relation  or  fiction  make  that  a  law  at  any 
antecedent  period  of  the  same  day  which  was  not  so  before  the 
approval.  The  Constitution  can  not  be  abrogated  by  construction. 
The  law  prescribes  a  rule  for  the  future,  not  for  the  past.  And 
this  in  a  republican  government  is  a  doctrine  of  vital  importance 
to  the  security  and  protection  of  the  citizen." — Potter's  Dicarris 
on  Statutes,  p.  101. 

In  an  elaborate  opinion  the  general  appraisers  concluded  that 
the  act  of  1897  did  not  become  operative  until  it  had  received  the 
signature  of  the  President,  but  this  conclusion  was  so  distasteful 
to  the  Government  that  the  decision  was  "  withheld  for  review." 
Upon  being  carried  into  the  courts,  the  decisions  were  all  against 
the  Government,  which  reluctantly  abandoned  its  absurd  and 
unjust  pretensions.  Having  before  it  the  procedure  of  certain 
European  countries,  where  power  is  conferred  on  the  executive 
to  raise  or  lower  duties  by  decree,  and  to  make  a  decree  opera- 
tive at  once,  it  thought  to  introduce  the  same  procedure  in  the 
conduct  of  the  United  States  Treasury  in  tariff  matters.  In  the 
light  of  this  attempt,  and  of  the  onerous,  inquisitorial,  and  des- 
picable rules  laid  down  as  to  the  inspection  of  baggage  of  American 
citizens  returning  from  abroad,  it  may  be  doubted  if  the  customs 
policy  of  the  country  has  ever  been  influenced  so  directly  in  favour 
of  private  greed  and  petty  finance. 


322    THE   TPiEORY   AND   PRACTICE  OF  TAXATION. 

It  would  seem  to  be  clear,  therefore,  that  a  tax  that 
is  not  levied  proportionally  or,  what  is  the  same  thing, 
equall}'  and  uniformly  upon  all  subjects  in  the  same  field 
of  competition — as,  for  example,  upon  all  persons  engaged 
in  the  same  business  or  profession,  or  upon  all  property  of 
the  same  kind  and  all  profit  or  income  (less  exemptions 
in  the  nature  of  charities)  in  the  same  ratio — is  a  dis- 
criminating exaction,  without  claim  to  either  justice  or 
equality,  inasmuch  as  to  the  same  extent  that  some  are 
favoured  by  the  discrimination  others  are  inevitably  plun- 
dered or  crushed.  It  is  also  well  to  remember  that  when 
the  term  "  uniformity  "  in  respect  to  taxation  is  used,  as 
it  often  is,  in  the  place  of  "  proportionality,"  the  meaning 
is  essentially  the  same;  and  that  uniformity  of  taxation 
does  not  consist  in  the  payment  of  the  same  amount  by 
each  taxpayer,  but  that  the  proportion  of  the  value  of  each 
particular  class  or  subject  which  each  person  pays  in  taxa- 
tion to  the  State  shall  be  everywhere  the  same. 

In  the  soundings  which  have  been  made  at  great 
depths  in  the  ocean  for  telegraphic  or  other  purposes,  the 
sounding  line  has  not  infrequently  brought  up  from  the 
bottom  small  chambered  shells  or  other  minute  animals  of 
exquisite  organization  and  structure;  and  the  question 
naturally  arises,  How  can  these  minute  organisms  live  and 
flourish  under  the  enormous  pressure  that  in  some  in- 
stances must  be  exerted  upon  them  of  at  least  three  tons 
to  the  square  inch?  The  explanation  is  to  be  found  in 
the  circumstance  that  the  pressure  is  everywhere  equal- 
ized, being  as  much  from  within  outward  as  from  without 
inward,  and  thus  an  equilibrium  is  maintained,  under 
which  development  goes  on  and  existence  is  made  possible; 
and  it  is  the  preserving  this  equilibrium,  this  equalization 
of  pressure,  that  constitutes  the  very  essence  of  correct 
taxation.* 

Another  point  worthy  of  attention  in  connection  with 
this  subject  is,  that  forms  of  taxation  which  were  not 
authorized  with  any  purpose  of  making  them  unequal  in 
their  incidence  or  burden,  not  infrequently  (as  is  especially 
the  case  in  the  United  States)  become  so  by  reason  of  ex- 

*  Speech  of  Mr.  Lowe,  afterward  Lord   Sherbrooke,  Chancellor 
of  the  British  Exchequer. 


INEQUALITY  OE'  TAXATION.  823 

traneoiis  circumstance;  inasmuch  as  every  tax  which  popu-\ 
lar  sentiment,  year  after  year,  will  not  allow  to  be  equally  \ 
enforced,  is,  to  the  extent  that  it  is  enforced,  a  discrimi;  ) 
nating  tax  of  the  most  unjust  and  unequal  character. zan- 
der the  internal  revenue  laws  of  the  United  States  as  they 
existed  not  many  years  ago,  there  was  a  very  striking  ex- 
ample of  this  character  in  the  case  of  the  tax  on  matches, 
to  which  more  particular  reference  will  be  made  hereafter, 
and  one  worthy  of  notice  still  exists,  in  the  case  of  the 
tax  on  negotiable  securities  (or  instruments) — as  railroad 
and  other  corporate  bonds — which  the  laws  of  every  State 
in  the  Federal  Union  make  subject  to  taxation;  inasmuch 
as  it  is  notorious  that  such  taxes  are  not  paid  by  the  great 
majority  of  the  citizens  w^ho  own  such  securities,  but  are 
paid  as  a  rule  by  guardians,  "trustees,  and  executors,  who 
are  obliged  to  inventory  them  in  probate  offices;  with 
the  result  that  widows,  orphans,  and  minors  are  plundered 
and  crushed;  while  those  who  evade  the  tax,  through  the 
utter  inability  of  the  State  to  collect  it,  are  rewarded  for 
their  evasion  in  an  increased  rate  of  interest.  Uniformity 
or  proportionality  in  taxation  is,  therefore,  one  of  the 
fundamental  principles  of  every  free  and  just  government; 
and  the  safety  of  all  taxpayers  against  the  grossest  abuses 
demands  that  in  taxing  any  class  or  locality  the  principle 
of  equality  of  rate  should  be  kept  sacred  and  inviolate. 

The  Constitution  of  the  United  States  requires  that 
"  all  duties,  imposts,  and  excises  shall  be  uniform  through- 
out the  United  States  ";  and  the  question  as  to  what  con- 
stitutes uniformity  of  taxation  under  this  provision  has  re- 
peatedly come  before  the  courts — Federal  and  State — for 
the  purpose  of  definition,  and  so  has  become  invested  with 
a  degree  of  historical  interest.  A  natural  inference,  at 
first  thought,  would  be,  that  under  this  provision  of  the 
Federal  Constitution  all  property  subject  to  taxation  must 
necessarily  be  taxed  at  the  same  rate  or  ratio — that  is,  if 
horses,  wagons,  and  land  are  taxed,  tben  the  same  per  cent 
of  value  must  be  assessed  upon  the  horses  and  wagons  as 
upon  the  land;  and  if  some  eight  hundred  per  cent  is 
assessed  upon  distilled  spirits — whisky — (as  is  the  case  in 
the  United  States  at  the  present  time)  every  other  com- 
modity from  which  it  was  proposed  to  raise  revenue  ought 
to  be  taxed  in  the  same  proportion.    In  like  manner  under 


324    THE  THEORY  AND   PRACTICE   OF  TAXATION. 

the  customs,  all  imports — liquors  and  pig  iron,  for  ex- 
ample— would  have  to  be  subjected  to  one  rate  of  duty. 
This  difficulty,  so  far  as  the  Federal  Government  is  con- 
cerned, has  been  obviated  by  an  assumption,  which  the 
courts  have  sustained,  that  a  tax  "  is  uniform  within  the 
meaning  of  the  constitutional  requirement  if  it  is  made 
to  bear  the  same  percentage  over  all  the  United  States  " 
— that  is,  it  must  be  uniform  as  regards  any  particular 
article  in  all  places;  that  whisky  or  any  other  commodity, 
for  example,  shall  not  be  subjected  to  Federal  taxation  at 
one  rate  in  one  State  and  at  a  different  rate  in  another 
State,  but  that  different  articles  may  be  subjected  to  dif- 
ferent rates,  provided  they  are  uniform  as  between  differ- 
ent places  and  different  States ;  as  it  obviously  "  could  not 
have  been  the  intent  of  the'  framers  of  the  Constitution 
that  the  Government  in  raising  its  revenues  should  not  be 
allowed  to  discriminate  in  respect  to  articles  which  it  de- 
sired to  tax."  * 

In  the  case  of  the  several  States  of  the  Federal  Union, 
to  which  the  Federal  constitutional  requirement  in  re- 
spect to  uniformity  of  taxation  does  not  apply,  the  same 
question — i.  e.,  as  to  what  constitutes  uniformity — has 
been  also  a  troublesome  one,  but  different  in  its  manifesta- 
tion. The  provisions  relating  to  taxation  in  the  Constitu- 
tions of  these  several  States  generally  start  with  the  idea, 
expressed  or  implied,  that  taxes  must  be  uniform;  and  a 
strict  construction  of  this  language  in  a  tax  statute, 
operative  in  only  one  State,  and  where  the  Federal  limita- 
tion of  uniformity  as  respects  place  does  not  apply,  might 
be  construed  as  restraining  the  authorities  of  a  State  from 
imposing  any  different  rate  of  taxation  on  the  manufacture 
or  sale  of  liquors  and  the  manufacture  and  sale  of  other 
merchandise,  or  on  the  land  and  the  business  of  the  agri- 
culturist. These  difficulties  in  the  way  of  construction 
have,  however,  been  largely  obviated  by  recognising  that 
when  in  the  statute  of  a  State  the  words  "  taxes  must  be 
uniform  "  are  used,  the  word  "  uniform  "  does  not  mean, 
as  in  the  Federal  Constitution,  uniformity  as  to  "  place," 
but  uniformity  "  with  regard  to  the  subject  of  the  tax  "; 

*  Lectures  on   the   Constitution   of   the  United   States,   Justice 
Miller,  pp.  240,  241. 


EQUALITY    UP   BURDEN.  325 

an  interpretation  in  full  conformity  with  the  principle 
before  enunciated,  that  uniformity  of  taxation  consists  in 
the  making  of  the  burden  of  taxation  equal  upon  all  sub- 
jects which  are  in  the  same  field  or  sphere  of  competition; 
or,  as  has  been  also  expressed  by  Justice  Samuel  F.  Miller,         ^  - , 

"different   articles   may  be   taxed   at   different   amounts, ij^QcuuJ-rrry^^ 
provided  the  rate  is  uniform  on  the  same  class  everywhere,  \  I 

with  all  people  and  at  all  times.  Take,  for  instance,  the 
case  of  a  license:  if  everybody  in  any  particular  class  is  re- 
quired to  pay  a  certain  license — if  all  lawyers  are  taxed 
twent3'-five  dollars  a  year,  all  merchants  one  hundred  dol- 
lars, and  all  saloonkeepers  two  hundred  dollars — then  the 
license  taxation  is  uniform,  because  it  imposes  the  same 
burdens  upon  every  man  of  the  same  class,  who  comes 
within  a  circle  of  well-defined  limits.  .  .  .  This  interpre- 
tation," he  adds,  "  may  be  a  little  strained,  but  probably 
it  has  arisen  from  the  necessity  of  enabling  the  Legisla- 
tures to  levy  taxes  according  to  common  sense,  if  not  alto- 
gether with  regard  to  strict  uniformity."  * 

The  opinions  expressed  by  the  State  courts  of  the 
United  States  when  this  question  of  uniformity  of  taxation 
has  been  practically  brought  before  them,  is  indicated  by 
reference  to  the  following  decisions: 

"  The  Constitution  of  the  State  of  Pennsylvania  pro- 
vides (Article  IX,  section  1)  that  '  all  taxes  shall  be  uni- 
form upon  the  same  class  of  subjects  within  the  territorial 
limits  of  the  authority  levying  the- tax,  and  shall  be  levied 
and  collected  under  general  laws.'  In  June,  1885,  an  act 
was  passed  by  the  Legislature  imposing  a  tax  of  three  mills 
on  the  dollar  on  mortgages.,  moneys  loaned  or  invested  in 
other  States,  money  capital  in  the  hands  of  individual  citi- 
zens, and  other  classes  of  property.  The  act  did  not  extend 
to  corporations,  which  were  taxed  at  a  similar,  in  some 
cases  at  a  higher  rate,  under  a  statute  of  1879.  The  act 
of  1885  was  opposed  on  the  ground  that  it  violated  the 
constitutional  rule  of  uniformity,  but  it  was  declared  valid 
by  the  Supreme  Court  of  the  State,  which  held  that  sub- 
stantial uniformity  had  been  obtained. 

"  A  decision  in  New  Jersey  turned  upon  a  constitu- 
tional provision  that  '  property  shall  be  assessed  for  taxes 

*  Miller,  ibid.,  pp.  241,  242. 


326    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

under  general  laws  and  by  uniform  rules,  according  to  its 
true  value.'  In  1884  the  Legislature  of  the  State  passed 
an  '  act  for  the  taxation  of  railroads  and  canals/  which 
imposed  a  tax  upon  the  lands  and  tangible  property  used 
by  railroad  and  canal  companies  and  their  franchises,  and 
touching  no  other  property.  The  constitutionality  of  this 
law  was  questioned  by  most  of  the  leading  companies,  but 
was  affirmed  by  the  State  Court  of  Errors  and  Appeals, 
which  held  that  as  the  law  was  a  general  one,  framed  in 
general  terms  and  restricted  to  no  locality,  it  operated 
equally  upon  a  whole  class  of  property,  whose  character- 
istics enabled  it  to  be  dealt  with  separately.  The  court 
further  declared,  that  as  a  previous  act  had  secured  the 
companies  against  being  required  to  pay  more  than  their 
full  share  of  tax,  a  substantial  uniformity  was  thus  se- 
cured." 

These  and  other  like  decisions  of  the  State  courts  of 
the  United  States  show  that  in  order  to  sustain  a  tax  law 
under  the  requirement  of  generality  or  uniformity  it  is 
not  necessary  that  all  property  should  be  taxed,  and  that 
a  State  has  the  right  to  select  property  for  taxation  at  its 
discretion.  Of  course,  discrimination  may  result  from  the 
exercise  by  the  State  of  the  power  of  dividing  the  objects 
of  taxation  into  classes,  but  while  persons  of  the  same 
class  and  property  of  the  same  kind  are  subjected  to  an 
equal  burden,  the  constitutional  requirements  as  to  uni- 
formity seem  to  be  satisfied. 

The  fourteenth  amendment  of  the  Constitution  of  the 
United  States,  which  prohibits  any  State  from  depriving 
any  person  of  property  "  without  due  process  of  law,"  is 
also  in  conformity  with  the  principle  enunciated  in  the 
above  citations;  for  taxation  without  jurisdiction,  and 
therefore  without  the  possibility  of  the  correlative  return 
of  any  protection  as  compensation,  would  obviously  be  an 
arbitrary  exaction  and  not  due  process  of  law.  But  if 
property  is  otherwise  (than  by  taxation)  taken  by  the 
Government  (as  by  the  so-called  law  of  "  eminent  do- 
main "),  full  and  fair  pecuniary  return  must  be  made  for 
its  value.  This  is  a  principle  as  old  at  least  as  constitu- 
tional government,  and  is  so  important  that  it  is  incorpo- 
rated in  the  fundamental  law  of  every  State  in  the  Federal 
Union.    Article  Y  of  the  Constitution  of  the  United  States 


TAXATION  AND  MORALITY.  327 

also  provides  that  private  property  shall  not  be  taken  for 
public  use  without  due  compensation.  It  is  clear,  there- 
fore, that  there  must  be  a  line  between  the  taking  of 
private  property  for  public  use  by  the  law  of  eminent  do- 
main and  by  taxation.  But  how  can  that  line  be  drawn 
except  by  the  rule  that  rightful  taxation  means  uniformity 
of  burden  on  competing  vocations  and  competing  property? 
The  following  decision  by  the  Supreme  Court  of  New  Jer- 
sey is  clearly  in  conformity  with  this  conclusion:  "  A  tax," 
it  said,  "  upon  the  persons  or  property  of  A,  B,  and  C  indi- 
vidually, whether  designated  by  name  or  in  any  other  way, 
which  is  in  excess  of  an  equal  apportionment  among  the 
persons  or  property  of  the  class  of  persons  or  kind  of  prop- 
erty subject  to  taxation,  is,  to  the  extent  of  such  excess,  the 
taking  of  private  property  for  a  public  use  without  com- 
pensation. The  process  is  one  of  confiscation  and  not  taxa- 
tion." (.Township  Committee  of  Heading,  35  N.  J.,  p. 
66,  1873.) 

Fifth.  Taxation  should  not  be  employed  as  an  agency 
or  for  the  purpose  of  enforcing  morality,  or  as  an  instru- 
mentality for  correction  or  punishment. 

The  punitive  or  moral  idea  has  probably  always  en- 
tered to  some  extent  as  an  element  in  all  those  taxes 
which  have  been  levied  on  luxuries,  and  more  especially  on 
all  those  forms  of  luxury  which  are  regarded  as  frivolous 
or  as  mere  insignia  of  wealth  and  title,  such  as  hair  powder, 
wigs,  coats  of  arms,  carriages,  etc.  But  when  a  govern- 
ment assumes  to  inquire  what  are  the  articles  the  con- 
sumption of  which  is  prejudicial  to  the  interests  and  well- 
being  of  its  people,  and  then  embodies  the  results  of  such 
inquiries  into  its  measures  of  revenue;  so  that  while  pro- 
viding means  for  the  support  of  the  state  it  also  prescribes 
how  the  citizen  ought  to  live,  dress,  eat,  or  drink,  the  re- 
sult is  always  ineffectual  for  purposes  of  revenue,  and  far 
more  so  for  the  promotion  of  morality.  Examples  illus- 
trative and  confirmatory  of  these  conclusions  are  so  nu- 
merous as  to  make  a  selection  of  them  not  a  little  difficult. 
The  following  have  been  cited  by  the  late  Sir  Morton 
Peto:  "  A  tax  on  dice  in  Great  Britain,  repealed  in  1862, 
had  the  ludicrous  result  of  producing  for  many  years  a 
revenue  of  five  shillings  per  annum  from  a  license  of  thirty 
to  forty  pounds  a  year  on  the  business  of  manufacturing 


328    THE  THEORY   AND   PRACTICE   OF  TAXATION. 

them.  Another  provision  of  law  was  that  every  person 
having  dice  unstamped  by  the  revenue  officials  in  his  pos- 
session was  liable  to  the  penalty  of  five  pounds  for  each 
pair!  But  stamped  dice  could  not  be  obtained.  Every 
one  who  wanted  dice,  even  cabinet  ministers  and  revenue 
officials,  purchased  square  pieces  of  ivory  for  a  few  pence 
and  marked  them  for  themselves.  As  regards  packs  of 
cards,  the  regulations  imposed  by  a  number  of  complicated 
acts  of  Parliament  were  so  stringent  that  legally  cards 
could  scarcely  be  made  or  sold.  N^evertheless,  for  many 
years  cards  were  hawked  about  the  streets  unstamped  and 
without  a  license;  and  the  manufacture  of  cards  for  ex- 
portation was  so  flourishing  that  nearly  half  a  million  packs 
were  estimated  to  be  surreptitiously  made  for  exportation 
at  the  time  the  obnoxious  taxes  were  repealed." 

Sixth.  No  tax  should  be  levied  the  character  and  extent 
of  which  offer,  as  human  nature  is  generally  constituted,  a 
greater  inducement  to  the  taxpayer  to  evade  rather  than  pay. 

The  justification  and  wisdom  of  the  above  maxim  find 
support  in  a  lesser  degree  from  argument  than  from  ex- 
perience, although  the  deductions  from  abstract  reasoning 
ought  alone  to  constitute  its  sufficient  indorsement.  It 
has  been  pointed  out  by  Herbert  Spencer  that  ideal  men 
are  possible  only  in  an  ideal  state;  and,  conversely,  that  a 
perfect  social  state  is  possible  only  when  every  unit  has 
achieved  perfection.  As  this  condition  has  not  been  at- 
tained, and  until  the  "  millennium  "  arrives  is  not  likely 
to  be,  the  inference  is  legitimate  that  a  large  proportion  of 
mankind  are  not  "  decently  honest,"  inasmuch  as  in  every 
variety  of  business  where  opportunity  for  the  perpetration 
of  fraud  exists,  much  labour  is  expended  in  guarding 
against  dishonesty.  This  is  specially  exemplified  in  the 
case  of  railroads,  "  where  tickets  have  to  be  dated,  punched, 
and  carefully  collected  to  prevent  their  being  used  again 
by  the  masses."  , 

But  it  is  in  matters  of  taxation  that  the  largest  amoimt 
of  irrefutable  evidence  is  to  be  found  in  support  of  the 
above  maxim.  Thus  in  the  case  of  smuggling  or  the  eva- 
sion of  duties  on  imports,  the  experience  of  all  govern- 
ments and  of  almost  all  countries  is  to  the  effect  that 
when  sufficient  inducement  in  the  way  of  gain  from  a 
violation  of  the  law  is  offered,  such  statute  can  not  be 


UNMORAL  TAXATION.  329 

executed  even  when  penalties  as  severe  as  death  have  been 
made  contingent  on  individual  arrest  and  conviction.  But 
it  has  been  reserved  for  that  nation  whose  people  claim 
to  be  the  most  law-abiding  and  intelligent,  to  furnish  the 
most  confirmatory  evidence  on  this  subject — namely,  the 
United  States — the  Congress  of  which  in  1865  imposed  a 
tax  on  distilled  spirits  amounting  to  more  than  fifteen 
hundred  per  cent  on  the  then  average  prime  cost  of  pro- 
duction. The  result  was,  that  the  Government  was  only 
able  in  1868  to  collect  the  tax  on  less  than  seven  million 
gallons  out  of  an  annual  product  of  certainly  not  less  than 
fifty  million  gallons;  which  last,  sold  as  it  undoubtedly  was 
at  the  current  market  price  (tax  included),  left  to  the 
credit  of  popular  corruption  at  least  $80,000,000. 

The  United  States  is  confessedly  one  of  the  most  pow- 
erful of  nations  and  governments,  but  its  entire  military 
force  can  not  crush  the  illicit  traffic  in  refined  opium,  un- 
der a  temptation  of  the  realization  of  six  dollars  contin- 
gent on  every  pound  of  this  commodity  that  is  successfully 
smuggled  into  the  country. 


22 


CHAPTEK  XV. 

NOMENCLATURE   AND    FORMS    OF    TAXATION. 
PART   I. 

The  most  simple  form  of  taxation  is  a  poll  or  capitation 
tax.  Both  terms  may  be  regarded  as  identical  in  use  and 
meaning,  but  the  former  is  probably  more  frequently  used 
in  tax  treatises  and  discussions. 

What  is  a  Poll  Tax? — In  a  strictly  economic  sense 
the  essential  requisite  of  a  "  poll "  or  "  head  "  tax  is  that 
it  be  laid  on  all  polls  or  heads,  and  be  unvarying  in 
amount.  A  varying  poll  tax  would  be  an  arbitrary  exac- 
tion, and  would  not  be  sustained  for  a  moment  as  a  proper 
exercise  of  the  right  of  taxation,  if  laid  without  reference 
to  a  man's  ownership  of  property.  So  soon,  however,  as  the 
amount  of  the  tax  exacted  is  made  dependent  upon  the 
amount  of  the  property  owned,  the  tax  ceases  to  be  a 
varying  poll  tax,  and  becomes  a  tax  on  the  property  itself. 
The  popular  idea  of  a  poll  tax  in  the  United  States  is  an 
annual  tax,  small  in  amount,  uniform  as  respects  rate,  and 
applicable  only  to  adult  male  persons.  Such  conceptions 
are  not,  however,  in  accord  with  historical  experience, 
which  is  to  the  effect  that  uniformity  in  assessment  has 
never  been  an  essential  or  even  usual  feature  of  this  form  of 
taxation,  but  as  a  rule  the  tax  has  been  intentionally  rated 
to  the  person  assessed  according  to  his  rank  and  station 
and  supposed  property.  The  "  poll "  or  "  capitation  "  tax 
of  history  has,  therefore,  been  rather  an  "  income  "'  than  a  ■ 
per  capita  tax;  and  the  poll  tax  of  the  United  States  finds 
few  precedents  in  history.  Under  the  Byzantine  Empire 
a  so-called  universal  poll  tax  was  substituted  in  lieu  of 
almost  all  the  tithes,  customs,  and  excises  which  had  before 
been  relied  on  for  revenue;  and  this  substitution  and  its 
330 


POLL  OR  HEAD  TAX.  331 

influence  was  regarded  by  Hume  as  one  of  the  chief  causes 
of  the  decadence  of  the  Eoman  state.* 

The  first  so-called  poll  tax  in  England  was  granted  in 
1377,  and  from  that  date  down  to  the  time  of  Queen  Anne 
was  an  important  source  of  revenue,  and,  not  being  uni- 
form, except  in  its  incidence  per  capita,  gave  rise  to  great 
popular  dissatisfaction,  both  by  reason  of  its  amount  and 
inequality,  and  also  by  the  inquisitorial  methods  employed 
for  its  assessment  and  collection.  At  first  (1377)  the  rate 
was  fourpence  on  every  head,  male  and  female,  above  four- 
teen years  of  age.  Subsequently,  under  the  reign  of 
Eichard  II,  in  order  to  avoid  the  unfairness  of  subjecting 
all — rich  and  poor,  noble  and  serf — to  such  a  uniform 
tax,  a  more  equitable  system  was  introduced,  the  taxpayers 
being  classified  by  reference  to  rank,  condition  of  life,  and 
property,  the  rate  ranging  from  six  pounds  thirteen  shil- 
lings for  dukes  and  archbishops,  to  two  pounds  for  barons 
and  knights,  and  three  shillings  fourpence  on  those  of 
"  least  estate."  The  retention  of  the  former  uniform  rate 
of  fourpence  on  all  married  labourers  and  upon  all  single 
men  and  women  above  fourteen  years  of  age,  who  were 
presumed  to  be  without  estate,  was,  however,  a  cause  of 
great  dissatisfaction  among  the  masses,  and  the  attempt 
to  collect  it  undoubtedly  constituted  the  prime  cause  of 
the  famous  "Wat  Tyler' rebellion  "  of  1381.  In  the  case 
of  the  last  poll  tax  authorized  in  England  under  Queen 
Anne  a  like  attempt  at  classifying  persons  was  continued; 
the  rate  commencing  at  one  shilling  per  annum  on  all 
persons  worth  more  than  fifty  pounds,  and  rising  to  ten 
pounds  for  peers  of  the  realm,  both  spiritual  and  temporal. 
One  curious  provision  of  this  final  enactment  was,  that  in 
all  cases  Catholics  were  to  pay  double  the  rate  imposed  on 
Protestants.  Bachelors  and  widowers  without  children 
were  also  subjected  to  special  rates.  Some  writer  has  re- 
marked that  such  exactions  could  only  have  been  designed 
and  authorized  by  a  government  of  misanthropes;  for  if 
one  with  a  view  of  escaping  them  abandoned  single  blessed- 
ness, he  only  involved  himself  in  greater  difficulties;  for 
there  was  a  tax  upon  marriages,  a  tax  upon  births,  and, 
if  the  health  of  the  victim  broke  down  under  these  ex- 

*  See  ante,  p.  96. 


332    THE  THEORY  AND   PRACTICE   OF  TAXATION. 

actions,  a  sum  varying  from  three  to  thirty  florins,  accord- 
ing to  his  station,  had  to  be  paid  before  his  sorrowing 
relatives  could  bury  him.  These  taxes  on  marriages  were 
enforced  in  England  from  1695  to  1705,  and  during  the 
first  five  years  of  their  continuance  yielded  an  average 
annual  revenue  of  about  two  hundred  and  fifty  thousand 
dollars.  It  was  noted  that  their  continuance  had  the  un- 
desirable effect  of  increasing  the  number  of  marriages  by 
irresponsible  persons,  and  in  a  manner  devoid  of  all  so- 
lemnity. The  rates  imposed  in  England  as  late  as  1706 
on  bachelors  and  widowers  contracting  marriage  varied 
according  to  the  class  in  life  to  which  they  belonged;  from 
thirty  pounds  to  twenty-five  pounds  on  the  elder  sons  of 
the  higher  orders  of  nobility  to  twelve  shillings  on  per- 
sons possessed  of  an  income  of  fifty  pounds  per  annum. 

Within  a  very  recent  period  a  petition,  numerously 
signed,   has  been  presented  to  the   French   Chamber   of 
Deputies  asking  that  a  special  tax  on  bachelors  be  estab- 
lished in  France,  and  recalls  the  fact  that  the  French 
revolutionary  Convention  of  1789,  and  some  of  the  old 
republics,  established  such  a  tax.     The  petition  further 
stated  that  the  number  of  bachelors  in  Paris  is  nearly  half 
^^       a  million,  while  the  number  of  married  men  is  not  more 
iN^    \>  I  than  379,000 ;  and  "  that  such  a  tax  ought  to  be  doubly 
"-       ^     '  welcome  in  France:  first,  because  it  will  increase  the  de- 
clining population  of  the  state  by  inducing  bachelors  to 
.  marry;  and,  secondly,  because  it  will  help  to  make  up  a 
11  growing  deficiency  in  the  national  budget."     In  Switzer- 
land, in  the  assessment  of  an  income  tax  and  taxes  on 
dwelling  houses,   certain   deductions  allowed   to   married 
persons  with  families  are  not  allowed  to  bachelors  or  child- 
less married  people. 

Legislation  looking  to  the  taxation  of  bachelors  has 
also  been  seriously  proposed  of  late  in  several  of  the  States 
of  the  Federal  Union.  In  Illinois,  for  example,  a  bill  has 
been  introduced  in  its  Legislature  imposing  a  uniform  tax 
on  all  single  men,  sound  in  mind  and  body,  above  thirty- 
[  two  years,  wiio  are  not  able  to  show  that  they  have  pro- 
'  posed  marriage  three  times — and  been  rejected.  The  pro- 
ceeds of  the  tax  are  to  go  toward  establishing  a  home  for 
worthy  and  indigent  single  women  above  the  age  of  thirty- 
eight. 


COLONIAL   POLL  TAXES,  333 

A  Missouri  bill  makes  the  tax  progressive,  increasing  by 
successive  increments  as  the  bachelor  persists  in  his  state 
of  single  blessedness. 

In  modern  times  (1848)  an  English  Governor  of  Ceylon 
— Lord  Torrington — undertook  to  repeat  the  experience 
of  his  countrymen  of  near  five  centuries  before,  by  im- 
posing a  poll  tax  of  three  shillings  per  annum,  or  one 
week's  labour,  valued  at  three  shillings,  from  every  man, 
rich  or  poor,  in  the  colony.  This  exaction,  in  point  of  in- 
equality, was  worse  than  the  poll  tax  of  Wat  Tyler's  time, 
inasmuch  as  it  made  the  average  income  of  the  poorest 
labourer  the  standard  according  to  which  the  rate  of  taxa- 
tion was  to  be  established  for  all.  There  was  also  another 
curious  feature  connected  with  this  experience.  The  Cin- 
ghalese  priesthood  were  held  liable  to  pay  this  tax,  either 
in  money  or  a  week's  work,  when  their  religion  required 
that  they  must  neither  perform  work  nor  possess  property. 
The  result  was  a  revolt  attended  with  much  bloodshed,  an 
abandonment  of  the  tax,  and  the  recall  of  the  governor. 

In  one  of  the  states  of  Central  America  a  poll  tax  was 
recently  required  to  be  paid  monthly;  all  adult  male  in- 
habitants of  the  several  towns  and  cities  being  obliged  to 
present  themselves  at  the  municipal  treasuries  and  pay 
their  dues  in  person. 

In  the  colonial  period  of  our  history  the  poll  tax  was 
enacted  by  nearly  all  the  North  American  colonies  at  one 
time  or  another.  In  Virginia  and  Maryland  it  was  for  a 
long  time  the  only  direct  tax;  and  in  the  latter  State  it 
was  imposed  upon  all  free  men  and  free  women,  and  upon 
all  free  children  over  twelve  years  of  age;  and  was  rendered 
particularly  odious  and  burdensome  from  the  circumstance 
that  its  payment  was  required  in  tobacco,  a  given  number 
of  pounds  to  the  head,  the  value  of  which  commodity  was 
not  constant,  but  varied  with  supply,  which  at  times  was 
intentionally  restricted,  with  the  intent  of  augmenting  its 
market  price.  There  was,  however,  another  side  to  this 
experience.  The  poll  tax  in  the  two  States  named  was 
almost  a  measure  of  necessity.  Land  was  of  small  value, 
for  there  was  in  the  new  colonies  little  distinction  between 
improved  and  unimproved  lands.  Slaves  w^ere  not  taxable 
a-s  personal  estate,  but  belonged  to  the  land  and  figured 
as  real  property;  and  the  personal  estates  of  the  planters 


334    THE   THEORY   AND   PRACTICE  OP  TAXATION. 

were  comparatively  small.  Polls  were  therefore  the  most 
available  measure  of  taxation,  and  tobacco  was  the  cur- 
rency of  the  day.  All  bills  and  charges  were  made  out  in 
so  many  pounds  of  tobacco;  all  lawyers'  and  court  fees  were 
so  determined;  the  parish  and  county  levies  were  fixed  in 
weights  of  tobacco;  and  the  minister  drew  as  his  salary  so 
many  pounds  of  tobacco  from  each  parishioner,  without 
respect  to  the  market  value  of  the  crop.  It  accordingly 
happened  that  a  poll  levy  might  be  excessive  one  year 
and  nominal  the  next;  with  lawyers,  ministers,  and  clerks 
rejoicing  in  abundant  means  one  season  and  reduced  to 
starvation  point  the  next.  Unequal,  in  proportion  to 
wealth  of  the  payer,  as  such  a  poll  tax  was,  its  inequality 
was  furthermore  greatly  aggravated  Ijy  fluctuations  in  the 
exchangeable  value  of  the  medium  in  which  it  was  payable. 

During  the  colonial  period  also,  in  North  America, 
men's  persons  were  included  in  the  schedules  of  property 
made  in  reference  to  taxation;  and  instead  of  having  a 
fixed  sum,  as  was  subsequently  the  rule  in  assessing  a  poll 
tax,  the  value  of  the  poll  was  rated  according  to  the  earn- 
ing capacity  of  the  individual;  and  if  he  was  old  and  in- 
firm, or  in  any  way  disabled,  the  value  of  the  poll  was 
placed  at  a  small  amount. 

Possibly  by  reason  of  English  and  American  colonial 
experiences,  and  perhaps  from  an  infiltration  as  it  were, 
down  through  the  ages,  of  the  fact  that  in  Greece  and 
Eome  the  poll  tax  was  exacted  only  of  the  people  of  subju- 
gated provinces,  and  was  therefore  regarded  as  a  mark  of 
inferiority  or  slavery,  this  tax  in  modern  times  has  not 
been  in  accord  with  public  sentiment,  and  in  most  coun- 
tries has  now  been  abandoned.  The  last  poll  tax  in  Eng- 
land was  enacted  in  1689.  Like  all  its  predecessors,  it  was 
always  unpopular  and  was  regarded  as  unsuited  to  the  peo- 
ple of  England.  It  was  repealed  in  1698,  and  "  henceforth 
this  form  of  tax  passed  into  the  list  of  taxes  tried  and 
never  again  to  be  imposed  in  England.  What  minister," 
said  Henry  Fox  in  1748,  "  would  presume  again  to  suggest 
the  hated  hearth  money  of  the  Stuarts,  or  the  poll  taxes 
of  the  reign  of  William  III  ?  "  * 

In  the  United  States  the  poll  tax  formed,  in  1895,  a 

*  Dowell,  Taxation  in  England,  vol.  ii,  p.  49. 


OPPOSITION  TO   POLL  TAXES.  335 

part  of  the  tax  system  of  twenty-six  of  the  States  and  Ter- 
ritories, and  was  not  recognised  in  twenty  others,  and  in 
some  of  the  latter  its  levy  is  prohibited  by  constitutional 
provisions.  In  New  York  a  general  law  for  the  incorpora- 
tion of  villages  confers  upon  its  trustees  the  power  to  raise 
money  by  levying  a  poll  tax. 

From  a  theoretical  or  purely  economic  point  of  view  the 
present  popular  opposition  and  adverse  sentiment  to  the 
poll  tax  in  the  United  States  do  not  seem  to  be  warranted 
by  any  very  good  reasons.  The  arguments  made  use  of  by 
those  opposed  to  its  continuance  are  not  derived  from  old- 
time  precedents,  or  warranted  by  the  experience  of  foreign 
countries,  inasmuch  as  its  assessment  in  the  States  of  the 
Federal  Union  has  always  been  inconsiderable  in  amount, 
and  has  rarely  involved  in  its  collection  any  inquisitorial 
or  arbitrar^measures.  The  one  most  deserving  of  attention 
has  been,  that  it  practically  imposed  a  property  qualification 
upon  the  right  of  suffrage  by  making  its  payment  a  pre- 
requisite to  the  act  of  voting,  a  money  payment  of  even  so 
small  a  sum  as  two  dollars  per  annum  in  Massachusetts 
and  one  dollar  in  Connecticut  being  regarded  in  that  light. 
But  in  answer  to  this  it  may  be  said  that  paupers  are  dis- 
franchised not  because  they  are  vicious  or  illiterate,  but, 
because  of  their  inability  to  support  themselves  or  aid  in 
supporting  the  State,  it  is  held  that  they  ought  not  to  be 
allowed  a  voice  in  the  government  of  the  State.  To  be  con- 
sistent, therefore,  the  advocates  of  the  abolition  of  the 
poll  tax  as  administered  in  New  England  ought  also  to 
connect  with  it — i.  e.,  its  abolition — an  extension  of  suf- 
frage to  the  inmates  of  poorhouses  who,  otherwise  quali- 
fied for  its  exercise,  are  now  debarred  from  it  exclusively 
by  a  lack  of  property  qualification.  On  the  other  hand, 
a  leading  argument  in  favour  of  its  continuance  is  that  the 
majority  of  citizens  who  pay  no  direct  State  taxes  upon 
property  of  any  kind,  but  who  are  self-supporting  and  not 
paupers,  ought  not  to  be  exempt  from  directly  contribut- 
ing to  the  support  of  the  government,  and  this  argument 
may  be  amplified  and  illustrated  as  follows :  Thus,  there 
is  no  citizen,  be  he  ever  so  humble,  who  is  not  vitally  in- 
terested in  the  preservation  and  welfare  of  the  civil  society 
of  which  he  is  a  member ;  and  it  is  of  the  first  importance, 
more  especially  as  the  tendency  of  the  age  seems  to  be 


336     THE  THEORY  AND   PRACTICE  OP   TAXATION. 


i> 


antagonistic,  that  each  member  of  society  should  be  en- 
couraged to  realize  at  all  times  his  personal  interest  in 
the  well-being  of  the  State.  To  the  rich  man  society  comes 
and  exacts  a  contribution  in  some  proportion  to  his  means, 
and  as  a  consequence  he  has  inducements  to  directly  in- 
terest himself  in  the  fiscal  management  of  the  govern- 
ment. To  the  poor  man,  who  is  otherwise  rarely  directly 
confronted  with  the  tax  gatherer,  society  comes  also,  and, 
in  common  with  all  citizens  of  a  certain  age,  asks  a  very 
small  annual  contribution  for  the  support  of  the  State, 
because  each  citizen  is  interested  in  its  existence  and  wel- 
fare, has  a  measure  of  responsibility  resting  upon  him, 
and  should  be  made  to  realize  that  responsibility.  In  the 
fact,  therefore,  that  the  poll  tax  touches  directly  every 
citizen  and  is  an  effective  agency  for  awakening  him  to 
a  sense  of  his  political  duties  and  responsibilities,  and  so 
better  qualifies  him  for  the  exercise  of  the  right  of  suf- 
frage, is  to  be  found  the  true  reason  for  the  incorporation 
of  a  small  annual  poll  tax  into  every  correct  S3^stem  of  State 
taxation. 

As  has  already  been  pointed  out,  a  poll  tax,  having  re- 
gard solely  to  the  person  and  not  to  his  property,  is  the 
only  tax  to  which  the  term  personal  can  be  rightfully 
applied.  |  It  is  the  essence  also  of  every  free  and  just  gov- 

\ernment  that  every  person — the  most  humble  as  well  as 
the  most  exalted — is  equal  before  the  law,  and  has  a  right 
to  invoke  the  sovereignty  of  the  State  in  all  its  fulness 
for  the  protection  of  his  person.  Keeping  these  two 
points  in  view,  it  would  further  appear  that  a  poll  tax 

(assessed  equally  upon  all  citizens,  and  free  from  all  dis- 
crimination, represents  the  most  perfect  equality  of  service, 
and  is  the  only  tax  which  a  citizen  can  pay  which  can  be 
regarded  in  the  light  of  a  reciprocal  for  the  service  which 
the  State  renders  to  him  in  protecting  his  person,  all  other 
taxes  being  in  respect  to  property  or  business. 

As  the  Constitution  of  the  United  States  also  excludes 
from  representation  "  Indians  not  taxed,"  it  would  seem 
to  imply  that  its  authors  regarded  the  exercise  of  suffrage 
by  a  citizen  that  was  not  a  pauper  and  paid  no  direct  tax, 
as  an  anomaly  not  likely  to  occur  under  a  government 
founded  upon  equal  public  rights  and  responsibilities,  and 
also  that  a  citizen  who  did  not  pay  any  direct  tax  to  the 


SUFFRAGE   AND   POLL  TAXES. 


337 


State  was  not  likely  to  have  any  more  correct  idea  or 
measure  of  his  true  relation  to  the  State  than  a  wild 
Indian. 

If,  however,  public  sentiment  in  any  community  is  so 
adverse  to  the  levy  of  moderate  poll  taxes  that  their  col- 
lection is  not  and  can  not  be  enforced  with  any  degree  of 
imiformity  and  equality,  as  is  reported  to  be  the  case  irrj, 
many  States,  then  the  advisability  of  their  abandonmenf  ^ 
can  not  well  be  questioned,  for  the  want  of  respect  for  a^^  ^ 
law,  which  always  results  from  the  maintenance  upon  the  /^ 
statute-book  of  any  law  which  a  community  will  not  re- 
gard or  permit  to  be  enforced,  is  an  evil  that  far  outweighs 
any  possible  good  that  can  come  from  its  continuance.    Fur- 
thermore, the  statement  is  probably  warranted  that  in  no 
instance  in  history  has  it  been  possible  to  enforce  a  perma- 15 
nent  tax  against  which  by  common  consent  the  public  has  P 
revolted.*  *^' 

In  considering  the  feasibility  of  its  continuance  it 
should  not  be  overlooked  that  the  tax  upon  property  can  be 
collected  because  the  State  holds  a  confiscatory  power  over 
the  property  to  the  extent  of  the  tax.  But  the  tax  upon  the 
non-property-holding  polls  can  not  be  collected  except 
through  the  consent  of  the  assessed  person,  unless  resort 
is  had  to  the  old  law  of  imprisonment  until  payment  is 
made — a  remedy  not  likely  to  find  favour. 

The  recent  experiences  of  Massachusetts  and  Pennsyl- 
vania are  especially  worthy  of  note  in  this  connection.  The 
Constitution  of  Massachusetts,  adopted  during  the  Eevolu- 
tion,  limited  the  suffrage  to  "every  male  inhabitant  of 
twenty-one  years  of  age  and  upward,  having  a  freehold 
estate  within  the  Commonwealth  of  the  annual  income  of 
three  pounds,  or  any  estate  of  the  value  of  sixty  pounds." 
This  restriction  was  abolished  in  1821,  but  payment  of  a 
poll  tax  was  still  required  before  a  man  could  vote.  In 
recent  years,  however,  this  form  of  taxation  has  become 
so  unpopular  in  this  State,  mainly  by  reason  of  a  general 
belief  that  politicians,  without  distinction  of  party,  were 
in  the  habit  of  collecting  and  disbursing  large  sums  for 


*  In  illustration  of  this,  attention  may  be  called  to  an  exposi- 
tion of  the  reasons  why  the  California  tax  on  mortgages  haa  been 
inoperative. — Plehn,  in  the  Tale  Review,  March,  1S99. 


338    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

the  purpose  of  influencing  or  bribing  voters  by  payment 
of  their  poll  taxes,  that  in  1891  an  amendment  to  the  Con- 
stitution of  the  State  was  adopted  which,  while  retaining 
the  previous  obligation  of  the  payment  of  an  annual  poll 
tax,  abolished  such  payment  as  a  prerequisite  for  voting. 
The  result  was  that  before  the  adoption  of  this  amendment 
from  fifty-two  to  flfty-nine  per  cent  of  the  poll  tax  due  in 
the  city  of  Boston  was  collected  year  by  year;  but  since 
then  the  percentage  of  collection  has  f ajlen  below  forty- 
four  per  cent.  Many  of  the  city's'  own  employees  figure 
among  the  delinquents,  and  it  has  been  found  necessary 
to  place  hundreds  of  poll  bills  in  the  hands  of  the  city 
treasurer  for  the  deduction  of  the  amount  due  from  their 
wages.  Leaving  out  the  persons  who  can  not  pay  without 
great  sacrifice,  it  is  stated  that  Boston  is  still  losing  above 
'oQe  hundred  thousand  dollars  yearly  in  revenue  from  fail- 
ure to  collect  the  taxes  upon  polls  that  can  and  should 
pay.  And  this,  in  a  modified  form,  is  probably  the  situ- 
ation throughout  the  State  of  Massachusetts. 

In  Pennsylvania  the  State  Constitution  makes  the  pay- 
ment of  a  State  or  county  tax,  at  least  one  month  before 
election,  a  prerequisite  to  the  exercise  of  suffrage;  and  as 
the  poll  tax  involves  the  smallest  amount  of  tax  that  a  citi- 
zen could  pay,  it  was  expected  that  almost  every  man  would 
pay  it.  But,  in  point  of  fact,  it  was  found  that  thousands 
of  citizens  neglected  to  do  so,  and  the  political  campaign 
committees,  irrespective  of  party,  recognising  this  fact, 
have  adopted  the  policy  of  furnishing  voters  whom  they 
desired  to  influence  with  receipts  for  the  payment  of  their 
poll  taxes ;  and  this  practice  has  attained  to  such  magni- 
tude in  recent  years,  that  the  two  leading  party  organiza- 
tions in  the  city  of  Philadelphia  alone  purchased  in  the 
year  1894  over  ninety-five  thousand  such  receipts.  Ob- 
viously this  is  a  form  of  bribery  which  is  forbidden  by  the 
spirit  if  not  by  the  letter  of  the  law;  and  to  meet  such  a 
situation  of  affairs  the  Legislature  of  Pennsylvania  has  re- 
cently (1897)  enacted  a  law  forbidding  the  payment  of  a 
poll  tax  by  any  other  person  than  the  elector  against  whom 
such  tax  is  assessed.* 


*  Durinof  the  American  colonial  period  some  attempts  were  made 
to  compel  the  exercise  of  suffrage  by  imposing  a  fine  on  citizens 


RECEIPTS.  V  339 


^-  .t^^L.^\^J. 


FOOR-FIFTHS  PAK 
NO  POLL  IMES 


Number  of  "Shy"  individuals 
in  Boston  Increases  Yearly 
— Mayor  Plans  Appeal  to 
Large  Employers. 


The  number  of  persons  assessed  for  a 
poll  tax  in  Boston  who  fail  to  pay  is 
increasing  every  year.  Mayor  Fitzger- 
ald is  at  work  on  a  plan  to  appeal  to  the 
public  service  corporations  and  large 
business  Jiouees  that  employes  will  be 
urged  to  contribute  $2  apiece  to  the 
city  treasury. 

Hy  the  last  report  there  were  183,421 
assessed  polls  and  only  32,460  paid. 

If  the  city  was  able  to  collect  the 
entire  sum  it  would  amount  to  $366,842, 
but  the  city  received  only  $64,920.  Ward 
6  shows  the  lowest  percentage  and 
ward  11  at  the  Back  Bay  makes  the 
best  showing. 

The  following  table  shows  the  as- 
sessed polls  and  the  number  who  paid, 
as  well  as  the  figures  showing  the 
money  assessed  and  collected,  and  may 
prove  interesting: 

Polls.       No.  paid.     Pr.  Ct. 

Ward    1 7,369  1,552  21.06 

Ward    2 6,317  871  13.78 

Ward    3 4,210  739  17.55 

Ward    4 4,103  704  17.15 

Ward    5 4,176  658  15.75 

Ward    6 10,537  695  6.595 

Ward    7 6,076  533  8.77 

Ward    8 10,089  949  9.40 

Ward    9 9,006  615  6.83 

■R'ard  10 8,625  1,556  18.00 

Ward  11 6,218  2,466  39.67 

Ward  12 7,593  1,239  16.32 

Ward  13 6,954  525  7.55 

Ward  14 6,416  913  14.23 

Ward  15 5,771  776  13.44 

Ward  16 6.459  1,273  19.71 

WardlT,. 6,926  858  12.39 

"U'ard  18 6,837  770  11.26 

AVard  19 8,029  1.181  14.71 

Ward  20 12,276  3,207  26.12 

Ward  21 7,953  2,043  25.68 

Ward  22 8,275  1,663  20.09 

Ward  23 7,165  2,727  38.06 

Ward  24 9.283  2.297  24.74 

Ward  25 6,758  1,651  24.43 

Total 183,421  32,460  17.697 


horities  above  referred  to 
principle  essential  to  the 
state — that  the  power  of 
hr  police  purposes,  but  be 
\evenue  to  meet  legitimate 


c^ 


a  tax  receipt,  but  expects    -7  ^  f 
r  is  a  bad  citizen.     He  is,  -j    <^,;^'Z, 
t  and  who  holds  the  value^.  "  ^  <:>> 
—PJiiladelphia  Times.        <^     ^"^ 
white  and  coloured  races  '•♦^^-jl  9^ 
•ontingent  on  the  former  y,  ^  c^ 
nues   to   a   large   degree,  *^ 
;nts  to  the  Federal  Con- 
is  of  full  legal  right  and 


jj   the  fine  imposed  in  Mary-  > 
tMion  having  been  one  hun-   <, 
^.■he  adoption  of  the  Federal'^ 
Tiiacter  is   believed   to   liave-^ 
bill   1889,  when  Kansa.s  City 
®*i  tax  of  two  dollars  and  a 

A  vote  at  a  general  election, 
before  the  State  courts  of 
tance  by  a  Superior  Court 
the  enlightenment  of  the 
State  to  compel  its  voters 
«if  the  State  can  do  so  the 
I  After  enumerating  many 
fre    done    to    maintain    good  -^^^  ^ 

that  he  could   see  no  legal  ^  ^^  ^ 
er  for  the  purpose  of  secur-  ,T  '  >-' 

blic  sentiment  and  the  elee-  -"'^  ^'~- 
public  oflfiees.     The  position  /     ^       ^ 
^lit  not  an  unreasonable  one.  '^..  y'\^   t 
^  type  of  government  is  at-    Tr^s^ 
5:e,  and  that  vote  is  counted  ^j'    Jf 
|)   the   Supreme  Court  of  the  ^*^      • 
',eclared   unconstitutional,  the  CC  ■ss' 
pws:   "Taxes  may  be  levied,"  " 

Jiving  a  money  value  to  the 
'does  not  necessarily  have  to 
,  services,  and  vice  reraa,  and 
,xes  are  upheld ;  but  who  can 
lie  of  a  vote?  It  is  degrading 
.  such  an  idea.  The  ballot  of 
lid  the  destiny  of  the  nation 


th  the  election  of  next  fall  in  vie*, 
appears  to  the  writer  that  while; 
Mr  Draper  announces  himself  a  revi-" 
sionist  he  proposes  action  that  will  ' 
comfort  the  hearts  of  the  "stand-pat- 
ters "  He  is  ready  to  wait  for  revi- 
sion till  the  Republican  majority  m 
Congress  favors  it.  It  is  not  likely 
that  the  Republican  majority  in  Con- 
gress will  favor  revision  during  the 
present    administration. 

Therefore  the  result  of  Mr.  Draper  s 
policy  will  be  exactly  the  same  as 
though  he  announced  himself  a  'stand- 
patter."   Is  this  not  so?  _,^_  ^^  ._ 

Boston,  April  10,  1906.        PAIR  PLAY. 


338     THE   THEORY   AND   PIi8£'~Be^use  we  are  told  that  wehav, 

accomplished  nothing  is  no  reason   T-Ti. 

the  purpose  of  influencing  .{rEre^-  °"'  ''  '*''  '''""''  ''*"  '"''l 

of  their  poll  taxes    that  in  U  p^l^.t^jis  ^speech.^  ma^de   be^for^e^^a^  R^e. 
Stltution  Ot   the   btate  was   a  announcement    of    the    tariff    policy    o| 

the  previous  obligation  of  ti  ^-^  %'\^r%'rl%'^s''vlvm\oUcy% 

tax,   abolished   such    paymeni  is   worth  while  to  consider  U  carefully. 

The  result  was  that  before  tl  ^il 
from  fifty-two  to  fifty-nine  ]  "*'" 
the  city  of  Boston  was  coll 
then  the  percentage  of  coif 
four  j)er  cent.     ]\Iany  of  tl 
among  the  delinquents,  am 
to  place  hundreds  of  poll 
treasurer  for  the  deduction 
wages.     Leaving  out  the  pc, 
great  sacrifice,  it  is  stated  t 
^  oQe  hundred  thousand  dolla 
ure  to  collect  the  taxes  u| 
pay.     And  this,  in  a  modif 
^ation  throughout  the  State 
In  Pennsylvania  the  Sta 
ment  of  a  State  or  county 
election,  a  prerequisite  to  t. 
the  poll  tax  involves  the  sm; 
zen  could  pay,  it  was  expectt 
pay  it.    But,  in  point  of  fac 
of  citizens  neglected  to  do  . 
committees,   irrespective   of 
have  adopted  the  policy  of 
desired  to  influence  with  rec 
poll  taxes;  and  this  practic. 
tude  in  recent  years,  that  th 
tions  in  the  city  of  Philade 
year  1894  over  ninety-five  t 
viously  this  is  a  form  of  bribi 
spirit  if  not  hv  the  letter  of 
situation  of  affairs  the  Legisla 
cently  (1897)  enacted  a  law  i 
poll  tax  by  any  other  person  tl 
such  tax  is  assessed.* 


*  Durinor  the  American  colonial  } 
to  compel  the  exercise  of  suffrage 


April  Weddings 

Intendinff  purchasers  of  flue 
PORCELAIN  and  CUT  GLASS 
will  find  extensive  exhibits  of 
the  choice  things  to  be  seen  in 
this  line,  equal  to  the  best, 
among  which  are : 

China  Service  Plates. 

Bouillon  Cups  and  Saucers. 

Ramekins  and  Stands,  attractive 
features  of  table  service  at  ladies' 
lunch  parties. 

Grape  Fruit  Plates,  a  new  table 
requisite. 

China  Sorbet  Cups  with  stands. 

After-Dinner  Coffee  Sets. 

Turkish  Coffees  in  metal  frames. 

Chocolate  Sets. 

Jardinieres  and  Pedestals. 

Tall  China  Pitcher  Vases. 

Guest-Room  Water  Sets,  pitcher^ 
match  box,  candlestick  and  glass 
tumbler  on  tray.  . 

Sideboard  Flagons  and  Stems. 

English  Rock  Crystal  Glass,  ir 
stemware,    vases,    cologne    bottles 

etc. 

Liqueur  Sets. 

Creme  de  Menthe  Glasses  anc 
Decanters.  , ,     ,  ...i 

Cocktail  Glasses,  gold  edges  witl 


I ™    i**    4-Vk<^  Ktf-kTirIc 


\Vtyy-L  t-5    o.O/£^'CVUt/i/WVNAt^  A^'"  V-^ivCfc/rP^^  < 

ABUSE  C^F  Ti^  RECEIPTS,  f  339 


Neither  of  the  judicial  authorities  above  referred  to 
seem  to  have  grasped  the  great  principle  essential  to  the 
continuance  of  every  truly  free  state — that  the  power  of 
taxation  should  not  be  invoked  for  police  purposes,  but  be 
strictly  limited  to  the  raising  of  revenue  to  meet  legitimate  tJ^ 

state  expenditures.  cs^^ 

"  The  man  who  will  not  buy  a  tax  receipt,  but  expects  _^  ^  ? 
his  party  to  purchase  it  for  him,  is  a  bad  citizen      He  is,*^    k^c^ 
in  effect,  a  person  who  is  bribed,  and  who  holds  the  valu 
of  his  vote  at  a  very  small  sum.'! — Philadelphia  Times. 

The  antagonism  between  the  white  and  coloured  races 
of  the  Southern  States,  mainly  contingent  on  the  former 
toleration  of  slavery,  still  continues  to  a  large  degree, 
although  both  races,  by  amendments  to  the  Federal  Con- 
stitution, have  been  placed  on  terms  of  full  legal  right  and 

neglecting  to  vote  at  regular  elections;  the  fine  imposed  in  Mary-  .- 
land  on  citizens  in  default  of  such  action  having  been  one  hun-  5 
dred  pounds  of  tobacco.  But  since  the  adoption  of  the  Federal"^ 
Constitution  no  legislation  of  like  character  is  believed  to  have-^^i 
taken  place  in  any  of  the  States  until  1889,  when  Kansas  City  > 
adopted  a  charter  provision  imposing  a  tax  of  two  dollars  and  a  v 
half  on  each  citizen  who  should  fail  to  vote  at  a  general  election.'  ^ 
This  provision  coming  up  for  review  before  the  State  courts  of  ^ 
Missouri,  was  affirmed  in  the  first  instance  by  a  Superior  Court  C 
judge,  who  took  the  ground  that  "  in  the  enlightenment  of  the  o 
present  age  it  is  in  the  power  of  the  State  to  compel  its  voters  , 
to  exercise  the  election  franchise,  and  if  the  State  can  do  so  the  > 
city  is  invested  with  the  same  power."  After  enumerating  many  Z!^  ^  a- 
things  of  an  arbitrary  nature  that  are  done  to  maintain  good  ^  •«  ^ 
municipal  government,  the  judge  said  that  he  could  see  no  legal  ^  ^V"  ^ 
objection  to  the  use  of  the  taxing  power  for  the  purpose  of  sccur-  jT  •  ?^ 

ing  a  full  and  perfect  expression  of  public  sentiment  and  the  elec-  V^  ^^ 
tion  of  competent  and  worthy  men  to  public  offices.     The  position  v     S      ^ 
was  an  advanced  one,  he  admitted,  but  not  an  unreasonable  one,  C^  >\    c 
in  view  of  the  fact  that  "  the  highest  type  of  government  is  at-   "^--^v 
tained  when  every  voter  casts  his  vote,  and  that  vote  is  counted^-    ^      £T 
just  as  it  is  cast."     On  an  appeal   to  the  Supreme  Court  of  the^"^      ■  i. 
State,  the  provision  was,  however,  declared   unconstitutional,  the  Cf  -sT 
language  of  the  decision  being  as  follows:   "Taxes  may  be  levied,"  ^  "" 

it  said,   "  in  money  or  in   services   having  a   money  value   to   the  -r.,^ 

public,  and  he  who  pays  in  money  does  not  necessarily  have  to  Sf^ 
pay  more  or  less  than  he  who  pays  in  services,  and  vice  verm,  and 
it  is  upon  this  principle  that  these  taxes  are  upheld ;  but  who  can 
estimate  the  money  value  to  the  public  of  a  vote?  It  is  degrading 
to  the  franchise  to  associate  it  with  such  an  idea.  The  ballot  of 
the  humblest  in  the  land  may  mould  the  destiny  of  the  nation 
for  ages." 


vi* 


340    THE  THEORY  AND  PRACTICE  OF  TAXATION. 


£^^ 


eqviality.     In  no  one  respect  does  this  antagonism  more 
■^    '*'        persistently  manifest  itself  than  in  opposition  on  the  part 
of  the  white  citizen  voters  to  the  exercise  of  free  and  con- 
'\        current  suffrage  by  the  negro  citizens.     Yet,  in  view  of 
f^^W        the  restraints  imposed  by  the  Federal  Constitution  in  re- 
spect to  political  or  legal  discriminations  against  the  negro 
1        race,  any  change  in  the  way  of  relief  from  the  situation 
-<      ^        by   State  enactment  has  been  regarded  as  impracticable. 
c      i        A  recent  constitutional  convention  of  the  State  of  Missis- 

f*       sippi  seems,  however,  to  have  at  last  most  ingeniously  solved 
"^'       this  difficult  political  problem,  by  enacting -that  every  citi- 
zen  (white  or  black)   of  established  age  shall  pay  a  poll 
"^       ,         tax,  the  non-payment  of  which  shall  exclude  him  from 
t  '    k        voting;  and  the  collection  of  the  tax  out  of  exempt  or 
^    ,^^       non-taxable  property — i.  e.,  the  possessions  mainly  of  the 
poorer  classes — was  also  denied.      The  intent  of  this  pro- 
vision was  therefore  manifestly  not  to  raise  revenue,  but 
to  exclude  negroes  from  voting  by  reason  of  non-payment 
of  the  poll  tax;  and  by  a  like  covert  purpose  the  com- 
mission of  a  list  of  petty  crimes  which  white  men  do  not 
generally  commit,  such  as  thievery,  arson,  and  obtaining 
j___^        money  under  false  pretences,  was  also  made  a  disquali- 
_?  V^        fication  of  voting;  while  robbery,  murder,  and  other  robust' 
crimes  which  are  practised  chiefly  by  white  men  were  not 
included. 

"  Within  the  field  of  permissible  action  under  the 
limitations  of  the  Federal  Constitution,  the  Mississippi 
convention  swept  the  circle  of  expedients  to  obstruct  the 
exercise  of  the  franchise  for  the  negro  race." — Ratliff  vs. 
Beale,  Mississippi  Reports. 

Of  other  terms  employed  to  indicate  different  forms  or 
methods  of  taxation,  and  a  clear  understanding  of  the 
meaning  of  which  is  essential  to  any  correct  discussion  of 
the  subject,  the  following  are  the  most  important : 

Direct  and  Indirect  Taxes. — Taxes  are  generally 
characterized  or  classified  as  being  either  direct  or  indirect; 
but  these  terms,  although  in  common  use,  are  somewhat  in- 
definite, owing  to  the  inability  of  economists  to  agree  as 
to  their  exact  meaning;  while  in  the  United  States  this 
indefiniteness  has  been  increased  by  the  circumstance  that 
its  Supreme  Federal  Court  has  felt  compelled  by  the  lan- 
guage of  the  Federal  Constitution  to  assign  to  the  term 


1 

DIRECT  AND  INDIRECT  TAXES.  341 

"  direct,"  as  applicable  to  taxation,  a  "  legal  "  rather  than 
an  economic  definition. 

In  a  general  sense  the  term  direct  is  applied  to  those 
taxes  which  are  demanded  from  the  particular  persons 
who  it  is  intended  or  desired  shall  pay  them ;  and  indirect 
to  those  which  are  demanded  from  a  person  with  the  ex- 
pectation and  intention  that  he  shall  indemnify  himself  for 
payment  of  the  same  at  the  expense  of  some  other  person.* 
There  is,  furthermore,  marked  distinction,  founded  on 
sound  philosophy,  between  a  direct  and  indirect  tax,  which, 
if  concisely  expressed,  will  constitute  two  unimpeachable 
definitions.  Thus  an  indirect  tax,  whoever  may  first  ad- 
vance it,  is  paid  voluntarily^ and  primarily  (in  the  sense  of 
ultimately)  by  the  consumer  of  the  taxed  article.     On  the  ,  — -. 

other  hand,  a  direct  tax  has  always  in  it  an  element  of  com-  f^^^^*^  ^*^ 
'pulsion;  not  necessarily  on  the  person  who  advances  the  ^r^j^^^-i^  ^ 
tax  in  block,  but  on  the  person  who  is  compelled  to  use  or  -zzHif^ 

consume  the  taxed  property  or  its  product.  For  example, 
there  is  nothing  compulsory  or  unequal  in  an  ordinary 
license  tax.  If  the  license  is  high,  no  one  is  compelled 
to  engage  in  a  business  covered  by  its  legal  requirement; 
and  few  persons  will  until  the  average  profits  of  the  taxed 
business  by  the  regular  laws  of  competition  finally  reach  the 

*  "  In  the  assessment  of  indirect  taxation,  and  such  as  is  in- 
tended to  bear  upon  specific  classes  of  consumption,  the  object 
itself  is  alone  attended  to  without  regard  to  the  party  who  may 
incur  the  charge.  Sometimes  a  portion  of  the  value  of  the  specific 
product  is  demanded  at  the  time  of  production — as  in  France,  in 
respect  to  t*he  article  of  salt.  Sometimes  the  demand  is  made  on 
entry,  either  into  the  State,  as  in  the  duties  of  import;  or  into 
the  towns  only,  as  in  the  duties  of  entry.  Sometimes  the  tax  is 
demanded  of  the  consumer  at  the  moment  of  transfer  to  him  from 
the  last  producer — as  in  the  case  of  the  stamp  duty,  and  the  duty 
on  theatrical  tickets  in  France.  Sometimes  the  Government  re- 
quires a  commodity  to  bear  a  particular  mark,  for  which  it  makes 
a  charge — as  in  the  case  of  the  assay  mark  on  silver  and  a  stamp 
on  newspapers.  Sometimes  it  monopolizes  the  manufacture  of  a 
particular  article  or  the  performance  of  a  particular  kind  of  busi- 
ness— as  in  the  monopoly  of  tobacco  and  the  postage  of  letters. 
Sometimes,  instead  of  charging  the  commodity  itself,  it  charges 
the  payment  of  its  price — as  in  the  case  of  stamps  on  receipts  and 
mercantile  paper.  All  these  are  different  ways  of  raising  a  revenue 
by  indirect  taxation :  for  the  demand  is  not  made  on  any  person 
in  particular,  but  attaches  upon  the  prod\xct  or  article  taxed." — 
M.  Jean  Baptiste  Say,  Treatise  on  Political  Economy,  1821. 


342    THE  THEORY   AND   PRACTICE  OP  TAXATION. 

average  profits  of  other  like  employments  or  investments. 
A  tax  on  commodities  like  whisky,  tobacco,  fermented 
liquors,  oleomargarine,  playing  cards,  dice,  and  the  like, 
can  always  be  avoided  as  a  primary  tax,  or  can  be  paid  at 
discretion.  But  there  is  nothing  voluntary  in  the  payment 
of  a  tax  upon  all  real  or  personal  property,  or  on  the  in- 
come of  such  property.  Human  beings  can  not  subsist 
without  some  forms  of  personal  property,  and  therefore  a 
tax  upon  all  personal  property  or  its  income  is  of  necessity 
compulsory  and  not  voluntary.  Any  general  assessments 
of  personal  property  on  or  by  reason  of  its  income,  as  well 
as  assessments  on  real  estate,  are  unavoidable  in  their 
nature,  and  therefore,  from  a  philosophic  or  economic  point 
of  view,  are  typically  direct  taxes.* 

fThe  presence  or  absence  of  the  principle  of  compulsion 
as  constituting  the  essential  difference  between  a  direct 
and  an  indirect  tax  has  not,  it  is  believed,  been  before  gen- 
erally recognised  by  economists.  And  yet  it  is  clearly  in- 
volved or  comprised  in  the  definitions  given  by  acknowl- 
edged authorities  on  the  subject.  Thus  M.  Leroy-Beaulieu, 
in  his  Traits  de  la  Science  des  Finances,  characterizes  those 
taxes  "as  direct  which  the  legislator  intends  should  be  paid 
at  once  and  immediately  by  him  who  bears  their  burden. 
They  strike  at  once  his  fortune  or  his  revenue,  and  every 
intermediary  between  him  and  the  treasury  is  suppressed." 
McCulloch  {Principles  of  Taxation)  describes  a  tax  "to 
be  direct  when  it  is  immediately  taken  from  property,"  and 
indirect  "  when  it  is  taken  from  its  owners  by  making  them 
pay  for  liberty  to  use  certain  articles  or  exercise  certain 
privileges."  ]\[.  Say  defines  a  direct  tax  to  be  the  "  abso- 
lute demand  of  a  specific  portion  of  an  individual's  real  or 
supposed  revenue."     {Political  Economy,  p.  461.) 

In  the  assessment  of  direct  taxes  a  proportionality  is 
generally  sought  between  the  person  who  pays  and  the 
value  of  his  property,  or  ability  to  pay.  Thus,  in  the  taxa- 
tion of  watches,  which  are  popular  subjects  for  direct  taxa- 
tion, the  proportionality  between  the  owner  who  pays  and 
the  amount  of  property  rated  is  recognised  and  maintained, 
by  imposing,  as  in  the  city  of  Philadelphia,  a  tax  of  one 

*  See  Alexander  Hamilton's  brief  in  the  Carriage  case,  Hamil- 
ton's Works,  vol.  vii,  p.  848. 


OBJECTIONS  TO  INDIRECT  TAXES.  343 

dollar  on  watches  of  gold  and  one  of  seventy-five  cents  on 
watches  of  silver.  In  the  assessment  of  indirect  taxes  the 
maintenance  of  any  proportionality  between  the  taxpayer 
and  his  fortune  is  not  regarded.  The  idea  of  a  personal 
assessment,  which  is  characteristic  of  direct  taxes,  further- 
more does  not  apply  to  indirect  taxes,  and  the  person  upon 
whom  the  incidence  of  such  taxation  primarily  falls  may 
be  regarded  as  advancing  rather  than  paying  the  tax,  which 
is  ultimately  paid  by  a  consumer,  not  as  a  tax,  but  as  a 
part  of  the  market  price  of  a  commodity. 

In  other  words,  the  general  effect  if  not  the  avowed 
object  of  an  indirect  tax  is  to  place  its  burden  in  a  round- 
about way  on  the  person  who  ultimately  bears  it.  Taxes 
on  imports,  or  customs  dues ;  most  internal  revenue  taxes ; 
"  octroi "  taxes,  or  taxes  levied  by  municipalities  on  com- 
modities— mainly  articles  of  food — brought  within  their 
limits  from  without;  stamps  and  fees  for  registering  or 
verifying  documents,  are  typical  examples  of  indirect 
taxation. 

The  objections  to  this  form  of  taxation  are  so  great  as 
to  warrant  their  characterization  as  evils.  In  the  first 
place,  they  prevent  the  taxpayer  from  knowing  what  he 
pays,  by  mixing  up  the  price  of  an  article  with  the  tax, 
as  has  been  already  noticed.  Secondly,  they  enhance  the 
cost  of  a  commodity  to  the  consumer  to  a  degree  (often 
largely)  in  excess  of  the  original  burden  of  the  tax.  Thus, 
if  an  importer  of  sugar,  salt,  wool,  coal,, or  metals  pays 
taxes  on  these  commodities  when  they  enter  the  territory 
of  another  country  (as,  for  example,  that  of  the  United 
States),  he  adds  them  to  the  first  or  invoice  cost  of  the 
importation.  On  this  aggregate  he  calculates  and  adds 
interest  and  profits  when  he  sells  to  a  wholesale  dealer; 
and  this  process  is  repeated  by  every  smaller  dealer  or 
retailer  through  whose  hands  the  commodities  pass  on 
their  way  to  final  consumption:  and  as  the  number  of 
such  intermediaries  is  greatest  in  the  case  of  articles 
sold  by  small  retailers,  the  final  burden  of  the  tax  is 
greatest  on  the  very  poor,  whose  necessities  compel  them 
to  buy  in  very  small  quantities.*     There  is  thus  a  very 


*  Some   years   since,   at   the   instance   of   the    writer,    the   late 
Charles  L.  Brace  instituted  an  examination  to  determine  the  dif- 


344    THE   THEORY   AND   PRACTICE   OF  TAXATION. 

real  and  close  connection  between  indirect  taxation  and 
pauperism. 

In  dealing  ^yith  the  relative  influence  of  direct  and  in- 
direct taxation,  Mr.  Gladstone,  when  Chancellor  of  the 
Exchequer,  took  the  position  in  a  parliamentary  discus- 
sion in  1859  that  "  the  distinction  between  them  involves 
the  question  between  rich  and  poor.  All  classes  pay  in- 
direct taxation:  the  middle  and  wealthy  pay  direct;  but  in- 
direct taxes  press  much  more  seriously  on  the  labouring 
population."' 

An  instructive  comparison  of  the  method  and  influ- 
ence of  direct  and  indirect  taxation  may  be  instituted  by 
supposing  the  two  systems  to  be  put  into  practical  opera- 
tion under  similar  circumstances,  for  effecting  a  purpose 
which  all  are  willing  to  admit  is  most  desirable  or  neces- 
sary. For  example,  a  town  meeting  is  held  to  provide 
means  for  building  a  bridge.  The  direct  and  honest  way 
would  be  to  assess  and  levy  an  equitable  tax,  adequate  to 
provide  for  the  proposed  expenditure,  on  the  property  of 
the  citizens  of  the  town.  An  indirect  way,  as  exemplified 
by  the  tariff  (omitting  the  complicated  machinery  for  ap- 
praising merchandise),  would  be  to  provide  that  the  store- 
keepers of  the  town  should  charge,  on  account  of  the  pro- 
posed expenditure,  an  excess  over  general  prices  to  the  ex- 
tent of  two  cents  a  pound  on  sugar,  twenty-five  cents  more 
per  yard  on  woollen  cloth,  five  cents  more  for  each  tin  pail 
or  cup,  and,  keeping  an  account,  return  the  results  of  the 
extra  prices  paid  on  the  above-mentioned  and  other  like 
commodities  by  their  consumers,  to  the  town  treasury. 
Would  it  not  be  evident  that  under  such  a  method  of  pro- 
cedure the  wealth  of  the  town  would  in  a  great  degree 

ference  in  price  to  individual  consumers  of  coal  bought  in  compara- 
tively large  and  small  quantities.  He  reported  that,  as  a  rule, 
when  coal  could  be  delivered  at  private  residences  in  the  city  of 
New  York  (at  the  time  when  the  investigation  was  made)  for 
four  dollars  and  a  half  per  ton,  its  cost  to  the  people  whose 
poverty  compelled  its  purchase  by  the  "  bucketful  "  was  at  least 
twelve  dollars  per  ton.  And  yet  when  subsequently  a  philan- 
thropic capitalist  proposed  to  remedy  this  grievance  of  the  poor 
by  selling  coal  bought  in  small  quantities  at  greatly  reduced  rates, 
his  attempt  did  not  meet  with  the  full  approval  of  the  people 
whom  he  desired  to  serve,  by  reason  of  an  inference  by  them  that 
the  project  must  in  some  way  be  a  scheme  for  the  promotion  of 
private  gain  rather  than  public  good. 


BURDENS  OP  INDIRECT   TAXATION.  345 

escape  taxation  for  the  construction  of  the  bridge,  and  that 
its  expense  and  burden  would  fall  mainly  upon  the  poor; 
inasmuch  as  the  average  amount  of  consumption  of  sugar, 
cloth,  and  tin  by  the  citizens  of  the  town,  and  the  average 
per  capita  taxation  contingent  on  the  same,  would  have 
no  just  or  uniform  relation  to  their  ability  to  pay  for  the 
same?  A  man  with  ten  thousand  a  year  income  will  not 
probably  consume  ten  times  as  much  sugar  as  one  with  one 
thousand  a  year. 

In  the  case  of  imported  commodities  charged  with  im- 
port duties,  not  only  is  the  price  of  the  imported  commodity 
enhanced  directly  by  the  duty,  but  the  price  of  a  much 
larger  quantity  of  competing  product  of  domestic  origin 
is  increased  to  approximately  the  same  extent.  Thus,  in 
the  case  of  iron  and  steel,  the  average  difference  in  the 
prices  of  these  commodities  in  England  and  the  United 
States  during  the  ten  years  from  1878  to  1887  inclusive, 
occasioned  by  the  imposition  of  indirect  customs  taxes  by 
the  latter  country  on  such  a  comparatively  small  propor- 
tion of  its  domestic  consumption  as  was  imported,  increased 
the  cost  of  the  total  consumption  of  these  products  in  the 
United  States  during  the  period  mentioned,  to  the  extent 
of  at  least  $550,000,000.  Such  an  increase  represented  an 
average  of  $55,000,000  per  annum  in  excess  of  the  cost 
of  a  like  quantity  to  consumers  in  Great  Britain  during 
the  same  period ;  an  aggregate,  according  to  the  census 
data  of  1880,  in  excess  of  the  entire  capital  invested  in 
the  iron  and  steel  industries  of  the  country,  including  all 
its  mines  of  both  coal  and  iron. 

An  incident  also  illustrative  of  the  character  of  an  in- 
direct tax  was  afforded  some  years  ago  when  it  was  proposed 
in  Washington  to  ex-Governor  Warmoth,  of  Louisiana,  as 
representative  of  the  sugar-producing  interest  of  that  State, 
to  substitute  a  bounty  on  domestic  sugars  in  place  of  the 
protection  afforded  by  the  then  tariff  (taxation)  on  the 
importation  of  foreign  sugars.  The  suggestion  was  re- 
pelled with  no  little  warmth,  on  the  ground  that  such  a 
substitution  would  be  most  prejudicial  to  the  domestic 
sugar  industry.  "  The  people,"  he  said,  "  know  that  a 
bounty  is  a  tax,  and  as  soon  as  they  found  out  its  amount 
would  insist  upon  its  repeal,  and  thus  the  sugar  interest 
would  lose  both  the  protection  of  the  tax  on  foreign  com- 
23 


346    THE  THEORY  AM3  PRACTICE  OF  TAXATION. 

petitive  imports  as  well  as  the  botLnty."  How  far  subse- 
quent events  harmonized  with  this  foreci  =t  by  Mr.  War- 
moth  is  worthy  of  brief  notice  in  this  eo^^ection.  Con- 
gress in  1891  entirely  repealed  all  the  tariiT  (tax)  on  the 
importation  of  raw  sugars,  and  to  compensate  the  domestic 
producers  of  sugar  for  the  abrogation  of  the  protection 
which  had  been  previously  given  them,  authorized  the  pay- 
ment by  the  Federal  Grovemment  of  a  bounty  of  from  one 
and  three  fourths  to  two  cents  per  pound  an  their  product. 
In  a  little  more  than  four  years  subsequently,  when  the 
effect  of  the  bounty — aggregating  over  $30,000,000  and 
representing  nearly  the  whole  cost  of  producing  the  sugar 
entitled  to  bounty — had  been  fully  recognised  by  the  public. 
Congress  repealed  the  act  authorizing  its  payment  without 
restoring  the  former  protective  duties;  and  with  such  a 
pronounc-ed  approval  of  its  action  on  the  part  of  the  people 
of  the  United  States  as  to  render  it  almost  certain  that 
no  Congress  will  hereafter  authorize  the  direct  payment 
of  bounties  by  the  Federal  GrOvemment  for  any  purpose.* 

The  Eelative  Buedex  on  Taxpatees  of  Direct  A>rD 
LsTDiEECT  Taxation'. — Any  discussion  of  this  subject  would 
be  incomplete  that  failed  to  notice  the  estimates  of  the 
relative  burden  on  taxpayers  of  direct  and  indirect  taixa- 
tion  by  persons  well  qualified  by  study,  and  administra- 
tive tax  experience,  to  express  an  opinion. 

It  is  not  a  matter  of  dispute  that  the  cost  of  collecting 


*  The  fundamental  qnestion  mxol-ved.  in  this  sugar-bounty  mat- 
ter has  never  been  passed  upon  directly  by  the  Supreme  Court 
of  the  United  States:  but  the  disbursement  of  the  money  voted 
by  Congress  for  the  payment  of  the  sugar  bounties  having  been 
■withheld  by  the  Comptroller  of  the  United  States  Treasury  on  the 
ground  that  the  appropriation  was  unconstitutional,  the  case  came 
up  before  the  United  States  Court  of  Appeals  of  the  District  of 
Columbia,  which  sustained  the  opinion  of  the  Treasury  official, 
and  was  adverse  to  the  claim  that  ~  the  general  wel£ire  ~  clause 
of  the  Constitution  might  be  stretched  to  encourage  the  production 
of  a  commodity  by  a  bounty.  ''  If  to  Congress  be  conceded."  it 
said.  "  the  power  to  grant  subsidies  from  the  public  revenues  to  all 
objects  it  may  deem  to  be  for  the  general  welfare,  then  it  follows 
that  this  discretion  renders  superfluous  all  the  special  delegations 
of  power  contained  in  the  Constitution,  and  opens  a  way  for  a 
flood  of  socialistic  legislation,  the  specious  plea  for  all  of  which 
has  ever  been  '  the  general  welfare."  "  For  further  notice  of  this 
celebrated  case  see  ante,  p.  299. 


COST  TO  THE  CONSUMER.  347 

direct  taxes  is,  as  a  rule,  much  less  than  is  the  case  with 
indirect  taxes,  and  that  of  the  receipt  contingent  on  the 
former  the  largest  proportion  accrues  to  the  Government. 
Thus  in  Prussia,  where  the  administration  of  taxation  may 
be  characterized  generally  as  despotic,  the  cost  of  raising 
revenue  from  direct  taxes  has  been  reported  at  four  per 
cent  and  of  indirect  at  twelve  per  cent.  Under  a  direct 
tax  system  everybody  knows  how  much  he  really  pays,  and 
if  he  votes  for  war  or  any  other  expensive  national  luxury, 
he  does  it  with  his  eyes  open  to  what  it  costs  him.  If  all 
taxes  were  direct,  taxation  would  be  much  more  apparent 
than  at  present,  and  there  would  be  a  continuous  popular 
demand,  which  at  present  there  is  not,  for  economy  in 
public  expenditures. 

In  England  it  has  been  estimated  that  for  every  fifty 
millions  of  indirect  taxes  paid  into  the  exchequer,  seventy 
millions  are  finally  taken  from  consumers;  and  M.  Guyot, 
late  French  Minister  of  Public  Works,  has  recently  shown, 
by  a  series  of  statistical  diagrams,  that  the  octroi  system 
of  indirect  taxation  in  France  adds  on  an  average  twenty 
per  cent  to  the  cost  of  goods  to  consumers  over  and  above 
the  tax.*  In  New  Zealand,  where  a  comparatively  small 
population  and  limited  and  definite  sources  of  revenue  have 
afforded  extraordinary  facilities  for  making  an  analysis, 
an  expert  has  recently  calculated  that  for  every  million  and 
a  half  collected  through  the  customs  the  people  of  that 
colony  have  paid  not  less  than  a  million  and  two  thirds. 

In  1851  a  committee  of  the  Liverpool  (England) 
Financial  Eeform  Association  published  a  statement  that 
a  careful  investigation  instituted  by  it  showed  that  the 
difference  between  the  net  amount  paid  into  the  exchequer 
from  indirect  taxes  and  the  gross  amount  taken  through 
or  in  consequence  of  this  system  from  the  taxpayers,  was 
not  less  than  an  average  of  thirty-seven  per  cent ;  and  added 
that  the  evidence  that  had  led  to  this  conclusion  "  can 
neither  be  controverted  as  matter  of  fact,  nor  strengthened 
as  a  matter  of  argument." 

*  It  seems  incredible,  he  is  reported  as  graphically  saying, 
"  that  Frenchmen,  usually  so  sensitive  to  ridicule,  can  quietly 
submit  to  be  '  sweated  '  and  '  plucked  '  like  fowls,  without  crying 
out  against  this  antiquated  method  of  indirect  taxation  only  so 
long  as  they  are  kept  blind  to  the  tax." 


348    THE  THEORY   AND  PRACTICE  OF  TAXATION. 

In  184G  lion.  Robert  J.  Walker,  then  Secretary  of  the 
Treasury,  in  accordance  with  instructions  from  the  United 
States  Senate  to  report  the  extent  to  which  the  price  of 
domestic  products  was  enhanced  by  the  then  existing  duties 
imposed  on  the  import  of  competing  commodities,  sub- 
mitted the  following  statement :  "  The  revenue  from  im- 
ports last  year  exceeded  twenty-seven  millions  of  dollars, 
of  which,  twenty-seven  millions  are  paid  to  the  Govern- 
ment upon  imports,  and  forty-four  millions  in  enhanced 
prices  of  similar  domestic  articles.  This  estimate  is  based 
upon  the  position  that  the  duty  is  added  to  the  price  of  the 
import  and  also  of  its  domestic  rival.  If  the  import  is 
enhanced  in  price  by  the  duty,  so  must  be  its  domestic 
rival,  for,  being  like  articles,  their  price  must  be  the  same 
in  the  same  market."  * 

In  a  debate  in  the  Constitutional  Convention  of  the 
State  of  New  York  in  1867-68,  the  late  Hon.  George 
Opdyke,  a  member,  and  one  of  the  best  economic  and  fiscal 
authorities  of  his  time,  stated  that  his  investigations  had 
led  him  to  the  conclusion  that  consumers  of  imported  arti- 
,  cles  in  the  United  States  are  "  charged  with  at  least  fifty 
per  cent  in  addition  to  the  duties  actually  received  by  the 
Government." 

As  the  result  of  a  careful  study  of  the  subject,  based  on 
the  rates  of  duty  imposed  by  the  tariff  law  of  March,  1883, 
Hon.  William  M.  Springer  (for  a  long  time  a  prominent 
member  of  Congress)  was  led  to  the  conclusion  that  the 
average  increase  in  the  prices  of  domestic  commodities  due 
to  the  duties  imposed  on  the  import  of  competitive  products 
had  not  been  less  than  $556,000,000  for  every  year  of  the 
twenty  years  next  precedent  to  1883,  "  making  an  aggre- 
gate of  over  eleven  billions  of  dollars,  not  one  dollar  of 
which  went  into  the  national  Treasury."  (See  North 
American  Review,  vol.  cxxxvi,  No.  319.) 

The  experience  of  the  indirect  taxation  of  commodities 
also  shows  that  they  favour  the  concentration  of  business 
in  a  few  hands,  or  the  creation  of  monopolies.    Of  this  the 

*  Senate  Document,  First  Session,  Twenty-ninth  Conofress, 
1845-'46.  This  estimate  was  founded  on  an  apparently  careful 
invest icfation  of  the  prices  "  of  sixteen  leading  domestic  articles 
and  the  manufactures  thereof,  similar  to  those  on  which  the  pres- 
ent duties   (1845)  are  imposed." 


MONOPOLIES  AND  INDIRECT  TAXES.  349 

experience  of  the  internal  revenue  system  of  the  United 
States  has  furnished  some  curious  examples.  Thus  a  tax 
was  imposed  in  1864  on  matches  at  the  rate  of  one  cent 
per  package  of  one  hundred  or  less;  and,  although  com- 
paratively insignificant,  it  yielded  at  one  time,  by  reason 
of  the  immense  number  of  matches  consumed,  an  annual 
revenue  of  over  $3,500,000,  which  sum  the  manufacturer 
was  obliged  to  advance  by  purchasing  and  affixing  stamps 
to  each  package  as  a  prerequisite  to  selling.  To  manu- 
facturers furnishing  their  own  design  for  the  stamp,  the 
Government  allowed  a  discount  of  ten  per  cent  on  stamps 
of  an  aggregate  value  in  excess  of  five  hundred  dollars  pur- 
chased at  any  one  time,  and  sixty  days'  credit  to  such  manu- 
facturers as  could  ofl^er  satisfactory  security  (i.  e.,  in  the 
form  of  United  States  bonds)  for  their  payments.  Under 
such  circumstances  small  manufacturers  with  a  limited 
capital  were  crushed,  and  the  business  of  manufacturing 
concentrated  in  a  very  few  firms,  which  raised  the  retail 
price  of  matches  to  an  extent  considerably  in  excess  of  the 
amount  of  the  tax.  In  later  years  (1883),  when  it  was 
proposed  to  repeal  this  tax,  the  singular  spectacle  was  af- 
forded of  the  larger  manufacturers  strenuously  exerting 
themselves  to  influence  Congress  to  prevent  the  repeal, 
and  asking  that  they  might  continue  to  be  taxed.  Their 
efforts  were,  however,  unavailing.  The  tax  was  abolished, 
and  the  retail  price  of  matches  immediately  declined  all 
of  sixty  per  cent — i.  e.,  from  fifteen  cents  to  six  cents  for 
six  boxes. 

Many  years  ago  the  late  Henry  C.  Carey  characterized 
indirect  taxation  in  the  following  forcible  and  figurative 
language:  "The  whole  system  of  indirect  taxation,"  he  said, 
"  is  mere  petty  larceny.  It  is  an  attempt  to  filch  that  which 
can  not  be  openly  demanded.  It  is  one  of  those  '  inven- 
tions '  of  man  by  which  the  few  are  enabled  to  grow  rich 
at  the  expense  of  the  many,  and  is  therefore  greatly 
favoured  by  that  class  of  men  who  prefer  living  by  the 
labour  of  others  to  living  by  their  own.  The  man  who 
plunders  a  city  is  of  the  same  species  with  the  highway 
robber.  The  one  who  imposes  indirect  taxes  is  of  the  same 
species  with  the  chevalier  d'industrie.  All  belong  to  the 
genus  of  great  men.  All  are  equally  destitute  of  manly  or 
generous   feeling.      The   plunderer  of  cities   selects  those 


350    THE   THEORY  AND  PRACTICE  OP  TAXATION. 

which  are  weak  and  defenceless,  and  the  collector  of  in- 
direct taxes  selects  the  commodities  used  by  poor  men  who 
can  not  defend  themselves ;  and  where  the  system  most  pre- 
vails, men  are  most  weak  and  cheap  and  food  most  dear."  * 

And  yet  Mr.  Carey's  name,  more  than  that  of  any  other 
citizen  of  the  United  States,  is  identified  with  a  system  of 
raising  revenue  which  is  based  exclusively  on  indirect 
taxation. 

Mr.  Henry  George,  in  one  of  his  essays,  also  thus  forci- 
bly makes  clear  a  leading  characteristic  of  the  indirect  taxes 
levied  by  the  Federal  Government :  "  Propose,"  he  says, 
"  to  abolish,  or  even  reduce,  one  of  these  taxes,  and  Wash- 
ington will  be  filled  with  lobbyists  begging  and  working 
for  its  extension.  What  does  this  mean?  It  means  that 
these  taxes  yield  revenue  to  private  parties  as  well  as  to 
the  Government." 

Carlyle  was  not  far  out  of  the  way  in  characterizing 
legislators  who  advocate  indirect  taxation  as  having  a  pur- 
pose, "  that  those  who  are  not  hungry  should  suppress  those 
who  are.  The  pigs  are  to  die — i.  e.,  be  subject  to  taxation 
— no  conceivable  help  for  that;  but  we,  by  God's  blessing, 
will  at  least  keep  down  their  squealing !  " 

*  H.  C.  Carey,  Past,  Present,  and  Future,  pp.  464,  465.  "  So 
long  as  it  (indirect  taxation)  shall  be  permitted  to  exist,  de- 
population, and  the  system  of  large  revenues,  raised  by  means 
of  indirect  taxation,  to  be  squandered  by  those  who  live  by  man- 
aging the  affairs  of  others,  must  continue.  So  long  as  it  exists, 
the  planter  and  farmer  must  continue  to  give  a  large  portion  of 
their  small  product  in  exchange  for  a  small  quantity  of  clothing. 
So  long  as  it  exists,  every  attempt  at  the  establishment  of  freedom 
of  trade  must  be  a  failure.  With  its  correction,  every  obstacle  to 
the  establishment  of  perfect  freedom  will  disappear,  and  the  tariff 
will  pass  out  of  existence.  The  interest  of  every  farmer  and  planter, 
and  of  every  labourer  and  mechanic,  is  directly  concerned  in  the 
adoption  of  a  measure  that  shall  be  calculated  to  promptly  pro- 
duce the  effect  desired — i.  e.,  repeal  of  indirect  taxation — but  it 
is  not  more  his  interest  than  his  duty.  So  long  as  the  present 
system  shall  continue,  trade  of  every  kind  must  be  subject  to 
A'iolent  fluctuations  which  enable  the  few  to  enrich  themselves  at 
the  expense  of  the  many,  and  enable  gambling  speculators  to  live 
in  palaces  and  ride  in  coaches  by  aid  of  indirect  taxation  levied 
upon  the  hard-working  mechanic  and  honest  trader,  ruined  by 
changes  in  the  value  of  their  property.  It  is  therefore  the  bounden 
duty  of  every  man  desirous  to  promote  the  great  cause  of  morality, 
justice,  and  of  truth  to  unite  his  efforts  with  those  of  his  neighbour 
for  the  early  accomplishment  of  this  great  object "  (pp.  471,  472). 


OPPOSITION  TO   DIRECT  TAXES.  351 

The  question  of  the  relative  merits  of  the  two  systems 
of  taxation  under  consideration  has  long  been — since  the 
days  of  Jeremy  Benthara — a  subject  of  discussion,  with  a 
trend  of  popular  sentiment  unmistakably  in  favour  of  in- 
direct, or  it  should  rather  be  said  in  opposition  to  direct, 
taxation.* 

What  satisfactory  explanation  can  be  given  for  a  con- 
clusion so  clearly  adverse  to  public  interest?  John  Stuart 
Mill  has  attempted  it  as  follows :  "  The  feeling  is  not 
grounded  on  the  merits  of  the  case,  and  is  of  a  puerile  kind. 
An  Englishman  dislikes  not  so  much  the  payment  as  the 
act  of  payment.  He  dislikes  seeing  the  face  of  the  tax  col- 
lector and  being  subjected  to  his  peremptory  demand.  Per- 
haps, too,  the  money  which  he  is  required  to  pay  directly 
out  of  his  pocket  is  the  only  taxation  which  he  is  quite 
sure  that  he  pays  at  all.  That  a  tax  of  two  shillings  per 
pound  on  tea,  or  of  three  shillings  per  bottle  on  wine, 
raises  the  price  of  each  pound  of  tea  and  bottle  of  wine 
which  he  consumes  by  that  and  more  than  that  amount 
can  not  indeed  be  denied.  It  is  the  fact,  and  is  intended 
to  be  so,  and  he  himself  is  perfectly  aware  of  it;  but  it 
makes  hardly  any  impression  on  his  practical  feelings  and 
associations,  serving  to  illustrate  the  distinction  between 
what  is  merely  known  to  be  true  and  what  is  felt  to  be  so."  f 

*  "  We  find,  as  the  result  of  our  examination  and  contrast,  that 
direct  taxation  is,  in  every  essential  feature,  vastly  superior  to 
our  present  method;  that  the  former  accords  with  justice,  econ- 
omy, and  all  the  other  requirements  of  a  sound  policy;  while 
indirect  taxation  violates  every  principle  on  which  leojislation 
should  be  based.  It  must  be  owned,  however,  that  notwithstand- 
ing the  weighty  objections  to  the  one  and  the  economy  and  perfect 
fairness  of  the  other,  there  are  few  of  our  citizens  \vho  are  de: 
sirous  of  making  the  proposed  change.  Direct  taxation  is  a  phrase 
that  grates  on  the  nerves  of  all.  Men  start  at  its  sound  as  though 
it  Avas  a  portent  of  evil ;  sometliing  which  had  impressed  them 
with  deadly  fear.  They  seem  to  regard  it  as  deeply  imbued  with 
the  spirit  of  tyranny,  to  say  the  least,  if  not  as  the  most  forbid- 
ding impersonation  of  that  monster.  So  unpopular  is  this  method 
of  taxation  that  an  aspirant  for  public  station  or  honours  would 
as  soon  think  of  committing  high  treason  as  propose  or  advocate 
it;  and  if  his  ambition  were  bounded  by  the  present,  he  would  be 
right,  for  he  could  not  more  effectually  destroy  his  popularity." — 
Treatise  on  Political  Economy,  hii  George  Opdi/ke. 

The  tendency  has  more  recently  been  toward  direct  taxes  in 
every  country  except  Great  Britain. 

t  Mill,  Principles  of  Political  Economy,  book  v,  chap,  vi,  §  1. 


352     THE  THEORY  AND   PRACTICE   OF  TAXATION. 

Mr.  Mill  also  expressed  the  opinion  that  men's  minds 
are  so  little  guided  by  reason  on  this  subject  that  if  it  was 
attempted  to  raise  all  the  imperial  re^nue  of  Great  Britain 
by  direct  taxation,  the  dissatisfaction  on  the  part  of  the 
people  at  having  to  pay  so  much  would  be  extreme. 

Speaking  on  this  subject  in  the  House  of  Lords  in  1860, 
the  Earl  of  Derby  said  that  "  by  making  the  whole  revenue 
of  the  United  Kingdom  depend  upon  direct  taxation  the 
pressure  would  be  so  odious  that  wars  would  be  avoided, 
because  no  party  would  incur  the  odium  of  carrying 
them  on." 

There  can  be  no  doubt  that  high  direct  taxes,  making 
evident  to  the  most  unobservant  citizen  the  excess  of  burden 
imposed  upon  him,  have  been  the  prime  cause  of  the  re- 
pudiation of  public  debts  in  the  United  States,  and  the 
arrest  or  ruination  of  internal  improvements  of  great  im- 
portance. 

Mr.  George  Opdyke,  in  his  Treatise  of  Political  Econo- 
my, advanced  the  idea  that  the  phenomenon  of  preference 
for  indirect  taxation  in  the  United  States  might  be  ac- 
counted for  in  part  by  the  fact,  that  the  unjust  manner  in 
which  taxes  were  levied  by  Great  Britain  on  her  Ameri- 
can colonies  engendered  in  the  public  mind  of  their  people 
"  a  deep-seated  hatred  of  every  form  of  taxation ;  and  the 
direct  being  its  most  visible  or  sensible  form,  it  has  been 
mistaken  for  the  worst — an  impression  that  was  strength- 
ened when  the  most  unpopular  of  our  Presidents  (the  elder 
Adams)  recommended  this  policy,  and  when  the  opposing 
political  party,  seizing  the  occasion  to  profit  by  public 
prejudice,  represented  it  as  the  worst  form  of  tyranny."  * 


*  An  acute  economic  student  and  observer  writes  as  follows 
on  this  subject:  "I  have  been  very  much  struck  by  the  apathy 
of  taxpayers  to  the  increase  of  taxes  in  their  most  direct  form. 
Take  Philadelphia,  for  example.  Nearly  every  man  owns  a  house 
there,  and  yet  there  seems  to  have  been  no  objection  to  the  grossest 
municipal  extravaerance,  entailinoj  heavier  and  heavier  burdens 
every  year.  The  city  to-day  levies  about  ten  times  as  much  per 
head  as  it  did  thirty  or  forty  years  aofo.  The  exact  figures  would 
be  easy  to  get,  and  would  certainly  point  a  moral  adverse  to  your 
vieAV  that  direct  taxation  is  twin  brother  to  public  economy.  I 
am  inclined  to  look  for  an  explanation  to  the  fact  that  real  estate 
values  have  steadily  risen,  so  that  after  all  the  increase  of  taxation 
has  been  easily  met." 


EXTRAVAGANCE  AND  DIRECT  TAXES.  353 

An  economic  phenomenon  in  connection  with  this  sub- 
ject goes  far  to  support  the  idea  that  political  economy  can 
not  be  an  exact  science,  inasmuch  as  it  is  largely  or  wholly 
based  on  human  action,  concerning  which  nothing  certain 
and  invariable  can  be  predicated.  Thus  the  argument  and 
evidence  are  complete  that  it  is  not  a  wise,  humane,  or 
perhaps  a  moral  policy  for  a  state  created  or  maintained 
for  the  purpose  of  promoting  the  interests  of  its  people  to 
adopt  a  system  of  indirect  taxation  for  the  raising  of  reve- 
nue ;  and,  furthermore,  that  it  is  contrary  to  human  nature 
for  a  people  to  desire  or  be  willing  to  pay  more  for  any 
service  or  commodity  than  it  is  intrinsically  worth;  or, 
what  is  the  same  thing,  perform  more  work  in  return  for 
the  same  than  is  a  fair  equivalent.  And  yet  both  govern- 
ments and  the  people  in  all  countries  and  at  all  times  (in- 
cluding the  present)  have  shown  a  preference  for  this  sys- 
tem of  taxation  over  any  other. 

One  explanation  of  this  curious  inconsistency  is  as  fol- 
lows: It  is  and  ever  has  been  the  aim  of  all  governments 
to  avoid  responsibility  and  occasion  for  popular  criticism 
in  respect  to  their  financial  policy;  and  a  direct  tax  is 
an  annual  reminder  to  their  citizens  or  subjects  of  the 
burden  of  government,  and  prompts  them  to  hold  the  gov- 
ernment to  a  strict  accountability.  Under  a  free  or  popu- 
lar form  of  government  a  general  system  of  direct  taxa- 
tion would  practically  call  for  an  annual  judgment  of  the 
voters  on  the  fiscal  policy  of  an  administration  in  power, 
and  such  a  tightening  of  the  purse-strings  as  would  reverse 
such  policy  in  case  of  its  popular  disapproval.  But  with  a 
system  of  indirect  taxation,  as  a  tariff  on  imports,  a  gov- 
ernment can  undertake  the  most  unnecessary  and  extrava- 
gant measures  and  obtain  revenue  sufficient  to  defray  its 
contingent  expenditures  without  general  popular  disap- 
proval. 

Indeed,  the  best  defence  that  can  be  offered  for  the  con- 
tinued resort  to  indirect  taxation  is,  that  with  the  present 
large  demands  on  the  part  of  all  civilized  states  for  reve- 
nue to  meet  increasing  fiscal  obligations,  mainly  incurred 
for  war  expenditures,  past  and  present,  and  the  unwilling- 
ness of  the  people  to  pay  direct  taxes,  it  would  be  practically 
impossible  to  maintain  the  modern  government  without 
large  contributions  from  people  of  limited  resources;  and 


354    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

that  this  purpose  can  only  be  accomplished  by  taxing  them 
indirectly.  On  the  other  hand,  it  may  be  replied  that  if 
direct  taxation  was  alone  made  the  agency  for  obtaining 
revenue,  unnecessarily  large  expenditures  through  the  re- 
sistance of  the  masses  would  not  be  possible.  In  like  man- 
ner, if  the  present  indirect  taxes  levied  on  imports  by  the 
United  States  were  to  be  replaced  by  direct  taxes,  collected 
in  money  or  in  kind  from  purchasers  for  final  consumption, 
on  whom  the  burden  in  both  cases  finally  rests — if  every 
person  buying  silk  or  sugar  were  stopped  by  a  government 
tax  gatherer  at  the  door  of  the  place  of  purchase  and  thirty 
per  cent  of  his  purchases  taken  in  kind  in  one  case  and  fifty 
per  cent  in  the  other  in  payment  for  taxes,  it  is  safe  to 
say  that  such  a  system  would  not  continue  operative  any 
longer  than  would  suffice  for  the  people,  through  legal 
methods,  to  compel  its  modification.  One  explanation — 
i.  e.,  of  inconsistency — on  the  part  of  the  people  who  pay 
taxes  is,  that  although  the  benefits  derived  from  the  insti- 
tution of  government  (which  practically  can  not  exist  with- 
out taxation)  are  of  the  first  importance,  they  are  not  so 
very  obvious,  nor  so  striking,  as  to  be  readily  recognised 
and  appreciated  by  the  masses,  who  are  accordingly  apt 
to  look  with  complacence  upon  a  direct  (personal)  demand 
for  a  tax  in  the  light  of  a  compulsory  payment,  for  which 
no  equivalent  is  returned.  Indeed,  this  feeling  is  so  strong 
that  it  has  become  an  almost  popular  maxim  in  all  coun- 
tries that  "  there  is  nothing  which  a  person  so  hates  to  do 
as  to  pay  taxes,"  in  case  they  are  direct.  But  "  by  the  in- 
genious plan  of  taxing  articles  on  which  incomes  are  ex- 
pended, rather  than  openly  demanding  a  portion  of  the 
income  itself,  the  amount  of  taxation  is  concealed  from  the 
mass  of  taxpayers,  and  its  payment  is  made  to  appear  in 
some  measure  voluntary.  The  indirect  tax  being  gen- 
erally advanced  rather  than  paid,  as  has  been  already 
shown,  in  the  first  instance  by  the  importers,  the  ultimate 
purchasers  for  consumption  confound  the  tax  with  the 
natural  price  of  the  commodity.  No  separate  demand  being 
made  upon  them  for  the  tax,  it  escapes  their  considera- 
tion, and  the  article  which  they  receive  seems  the  fair 
equivalent  of  the  sacrifice  made  in  acquiring  it.  Indirect 
taxes  have  also  the  advantage  of  being  paid  by  degrees, 
in  small  portions,  and  at  a  time  when  the  commodities  are 


DIRECT  TAXES  IN  DEPENDENCIES.  355 

wanted  for  consumption,  or  when  it  is  most  convenient  for 
the  consumer  to  pay  them."  * 

In  the  attempt,  furthermore,  of  civilized  rulers  to  main- 
tain a  civilized  government  over  an  uncivilized  people,  there 
seems  to  be  no  practical  method  of  compelling  such  a 
people  to  help  maintain  a  proper  and  desirable  govern- 
ment except  through  a  resort  to  indirect  taxation.  Thus, 
in  British  India,  a  country  of  low  civilization,  small  ac- 
cumulation of  wealth,  and  under  such  climatic  conditions 
as  necessitate  the  minimum  of  clothing,  shelter,  and  food, 
the  only  way  by  which  the  mass  of  the  native  population 
can  be  compelled  to  contribute  anything  whatever,  apart 
from  a  tax  on  land  in  the  form  of  rent,  toward  the  support 
of  a  government  whose  beneficent  and  civilizing  influence 
has  become  a  matter  of  history,  is  by  the  taxation  of  salt, 
the  consumption  of  which  is  a  necessity  to  all,  and  the  pro- 
duction and  distribution  of  which  can  in  a  great  measure 
be  controlled. 

In  the  British  island  and  colony  of  Jamaica,  populated 
mainly  bv  emancipated  blacks  and  their  descendants  (557,- 
133  out  of  a  total  of  580,804  in  1881),  who  own  little  or 
no  land,  and  consume  little  of  food  other  than  what  is 
produced  almost  spontaneously,  the  problem  of  how  to  raise 
revenue  by  any  form  of  taxation  for  defraying  the  neces- 
sary expenditures  of  the  Government  has  been  one  of  great 
embarrassment.  For  the  year  1884  these  expenditures 
averaged  three  dollars  and  forty  cents  per  head  of  the  en- 
tire population,  and  of  this  amount  an  average  of  about 
fifty  cents  per  head  could  only  be  obtained  from  any  in- 
ternal taxation,  and  this  mainly  through  the  indirect 
agency  of  licenses  and  stamps,  and  not  by  any  direct  assess- 
ment. The  balance  of  required  revenue  was  obtained  from 
a  special  tax  on  some  set  manufacture,  and  from  export 
and  import  duties.  A  similar  state  of  affairs  in  Mexico, 
heretofore  noticed  somewhat  in  detail  (see  page  139), 
would  also  seem  to  necessitate  a  resort  to  a  system  of  in- 
direct taxation. 

Attention  is  here  also  particularly  directed  to  a  fact 
that  has  escaped  the  notice  of  many  economic  and  fiscal 
authorities  and  writers,  and  that  is  the  remarkable  change 

*  J.  R.  McCulloeh,  Taxation  and  the  Funding  System. 


356    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

that  has  taken  place  within  the  last  fifty  years  in  the  Brit- 
ish tax  system,  whereby,  through  an  extensive  substitution 
of  direct  for  indirect  taxation,  the  burden  of  tax  incidence 
has  been  shifted  to  a  great  extent  from  the  community  at 
large  to  the  propertied  classes.  Thus,  in  184:l-'42,  indirect 
taxes  yielded  seventy-three  per  cent  and  direct  taxes  twenty- 
seven  per  cent  of  the  total  imperial  revenue,  but  in  ISDS-'OG 
indirect  taxes  yielded  fifty-two  per  cent  and  direct  taxes 
forty-eight  per  cent.  Is  not  the  inference  warranted,  that 
in  the  change  in  the  incidence  of  British  taxation  above 
noted  is  to  be  found  at  least  a  partial  explanation  of  the 
remarkable  and  progressive  increase,  in  comparatively  re- 
cent years,  in  the  consumption  of  the  various  commodities 
that  enter  into  the  living  of  the  labouring  classes  of  Great 
Britain,  and  is  it  not  also  singular  that  the  above  facts  and 
their  possible  inference  do  not  as  yet  seem  to  have  attracted 
the  attention  of  those  most  interested  in  social  economics? 


CHAPTER  XVI. 

NOMENCLATURE   AND    FORMS    OF   TAXATION. 
PART   II. 

The  nature  and  scope  of  the  "  legal  "  and  wholly  anom- 
alous definition  (to  which  reference  has  been  made,  see 
page  341)  that  has  been  given  in  the  United  States  by  its 
Supreme  Court  to  a  direct  tax,*  and  the  interesting  judicial 
and  historical  circumstances  in  connection  therewith,  are 
substantially  as  follows : 

The  Constitution  of  the  United  States  provides  that 
"  representatives  and  direct  taxes  shall  be  apportioned 
among  the  several  States  according  to  their  respective  num- 
bers " — that  is,  population — "  and  excluding  Indians  not 
taxed."  The  origin  of  the  idea  thus  incorporated  in  the 
Constitution  of  apportioning  direct  taxes  according  to 
representation,  or  population,  rather  than  upon  property, 
is  not  certainly  known,  and  has  been  made  the  subject  of 
speculation.  Hamilton,  subsequent  to  the  adoption  of  the 
Constitution,  suggested  that  the  writings  of  the  French 
economists  of  the  eighteenth  century,  with  which  a  num- 
ber of  the  prominent  members  of  the  Constitutional  Con- 
vention were  familiar,  were  its  source.  These  held  that 
"  agriculture  was  the  only  productive  employment,  and 
that  the  net  product  from  land,  to  be  found  in  the  hands 
of  the  landowner,  is  the  only  fund  from  which  taxation 
can  draw  without  impoverishing  society."     They  were  ac- 

*  Chief-Justice  Chase  on  more  than  one  occasion  judicially  inti- 
mated that  the  definition  of  direct  taxes  by  political  economists 
can  not  be  used  satisfactorily  for  the  purpose  of  construing  the 
phrase  in  the  Constitution  of  the  United  States.  Thus,  a  tax  on 
the  circulation  by  banks  of  State  bank  notes  was  held  not  to  be 
direct  (Veazie  vs.  Fenno,  8  Wallace,  533—546),  and  so  also  of  a 
tax  on  incomes  of  insurance  companies  (Pacific  Insurance  Com- 
pany IS.  Soule,  7  Wallace,  433). 

357 


358    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

cordingly  led  to  class  taxes  habitually  as  direct  when  laid 
immediately  upon  the  landowner,  and  as  indirect  when  laid 
upon  somebody  else,  but  in  their  opinion  destined  to  be 
borne  by  the  landowner  ultimately.  Precedents  for  levy- 
ing taxes  by  apportionment  were  also  to  be  found  in  the 
French  taille  reellc,  which  was  a  tax  on  the  income  of  real 
property  and  laid  by  apportioning  a  fixed  sum  among  the 
provinces  and  requiring  from  each  its  quota.  The  English 
land  tax,  established  under  William  III,  embodied  a  like 
provision.* 

Be  this  as  it  may,  the  distribution  of  property  (wealth) 
among  the  people  of  the  American  States  at  the  time  of 
the  adoption  of  the  Federal  Constitution,  as  shown  by  the 
debates  in  the  Constitutional  Convention,  was,  very  curi- 
ously, such  that  an  apportionment  of  taxes  according  to 
population  and  representation  was  not  inequitable.  When 
the  subject  was  under  discussion,  Roger  Sherman,  of  Con- 
necticut, said  he  "  thought  the  number  of  people  alone  the 
best  rule  for  measuring  wealth  as  well  as  representation  " 
(Elliot's  Debates,  v,  297).  Mr.  Gorham,  of  Massachusetts, 
"  supported  the  propriety  of  establishing  numbers  as  the 
rule.  He  said  that  in  Massachusetts  estimates  had  been 
taken  in  the  different  towns,  and  that  persons  had  been 
curious  enough  to  compare  these  estimates  with  the  respect- 
ive numbers  of  people,  and  it  had  been  found,  even  in- 
cluding Boston,  that  the  most  exact  proportions  prevailed 
between  numbers  and  property"  (ibid.,  300).  Mr.  Wilson, 
a  leading  member  from  Pennsylvania,  said  that,  "  taking 
the  same  number  of  people  in  the  aggregate  in  the  western 
settlements  of  Pennsylvania  and  in  the  city  of  Philadel- 
phia, he  believed  there  would  be  little  difference  in  their 
wealth  and  ability  to  contribute  to  the  public  wants " 
(ibid.,  301).  Dr.  Johnson,  of  Connecticut,  "thought  that 
wealth  and  population  were  the  true,  equitable  rules  of 
representation;  but  he  conceived  that  these  two  principles 
resolved  themselves  into  one,  population  being  the  best 
measure  of  wealth"  (ibid.,  303).  And  when  the  vote 
came  to  be  taken  in  the  Federal  Convention  on  the  propo- 


•  For  further  discussion  of  this  subject,  see  paper  by  Prof. 
Charles  F.  Dunbar,  contributed  to  The  journal  of  Economics,  for 
July,  1889,  and  entitled  The  Direct  Tax  of  1861. 


FEDERAL  DIRECT  TAXES.  359 

sition  that  direct  taxation  ought  to  be  proportioned  to 
representation,  it  passed  without  opposition  (ibid.,  302). 

In  the  five  occasions— 1798,  1813,  1815,  1816,  and  1861 
— in  which  the  Federal  Government  has  established  a  gen- 
eral system  of  direct  taxation,  there  has  been  no  essential 
and  radical  difference  of  opinion  in  respect  to  the  methods 
and  instrumentalities  by  which  the  provisions  of  the  enact- 
ments could  be  made  effective  for  the  purpose  of  raising 
revenue.  The  amount  of  money  desirable  to  raise  was  first 
determined.  Then  the  population  of  each  State  was  taken, 
according  to  the  latest  preceding  census,  and  the  proportion 
of  tax  proceeds  respectively  due  was  calculated.*  A  statute 
was  then  passed  declaring  that  each  State  should  pay  to 
the  Federal  Treasury  so"  much  money,  according  to  its 
ascertained  proportionate  liability  of  the  aggregate  amount 
which  the  entire  Union  of  the  States  was  required  to  raise. 
In  each  of  the  first  four  cases  of  such  a  system  of  taxation 
the  several  States  were  empowered  to  assume  or  assess  in 
their  own  way  the  sums  for  which  they  were  severally  as- 
sessed and  liable  to  pay  into  the  national  Treasury.  In 
the  case,  however,  of  the  levy  in  1861,  eleven  States  openly 
in  insurrection  against  the  Federal  Government,  one  loyal 
State,  and  one  Territory  (Utah)  refused  or  neglected  to  pay 
their  assessment ;  whereupon  a  law  was  passed  by  Congress 
authorizing  the  appointment  of  special  officials,  whose  duty 
it  was  to  go  into  such  States  as  soon  as  it  was  practicable 
and  levy  the  proper  assessments,  seizing  and  selling  real 
property  whenever  it  became  necessary  to  enforce  payments 
of  the  amount  required.  And  these  provisions  of  law  were 
enforced  by  threat  or  action  to  such  an  extent  that  about 
$2,800,100  were  collected  up  to  1870,  out  of  an  aggregate 
quota  of  $5,153,891  due  from  all  the  States  that  adopted 
ordinances  of  secession ;  the  total  amount  assessed  on  all 
the  States  having  been  $20,000,000. 

The  confusion  attendant  on  the  settlement  after  the 
war  of  the  unpaid  liabilities  of  the  impoverished  insurrec- 
tionary States  to  the  Federal  Government,  on  account  of 
the  direct  tax  of  1861,  finds  further  illustration  in  the  cir- 

*  Up  to  and  including  the  direct  tax  of  1861,  its  imposition 
was  scrupulously  made  in  accordance  with  the  understanding  of 
the  framers  of  the  Constitution.  Thus,  the  ratio  of  the  State  of 
New  York  in  1861  was  returned  at  $2,602,918|, 


360    THE   THEORY   AND   PRACTICE  OF   TAXATION. 

cumstance,  that  the  Comptroller  of  the  United  States 
Treasury  decided  in  1883  that  the  sum  of  $35,555,  appro- 
priated b}^  an  act  of  Congress  to  refund  to  the  State  of 
Georgia  money  expended  by  it  in  1777,  or  one  hundred 
and  six  years  previously,  for  the  common  defence  in  the 
War  for  Independence,  should  be  paid  to  the  Treasurer  of 
the  United  States,  "  to  the  credit  of  Georgia  on  account  of 
direct  taxes  charged  against  the  State."  The  Supreme 
Court  of  the  United  States  also  decided  in  1887  (United 
States  vs.  Louisiana,  37,  123)  that  the  direct-tax  law  in 
1861  did  not  create  any  liability  on  the  part  of  a  State  to 
pay  the  tax ;  and  that  the  apportionment  merely  designated 
the  amount  to  be  levied  upon  the  property  of  individuals  in 
the  several  States,  without  any  liability  attaching  to  the 
State  in  its  political  and  corporate  character.  "  This  de- 
cision finally  left  the  unpaid  quota  of  the  direct  tax  of  1861 
in  precisely  the  same  position  as  any  other  tax  assessed  upon 
individuals,  which  the  United  States  has  been  unable  or 
has  neglected  to  collect  in  full."  * 

At  the  time  when  it  was  proposed  to  enforce  the  tax 
on  defaulting  States  by  the  seizure  and  sale  of  land,  a 
doubt  was  expressed  whether  the  tax  in  question  was,  in  its 
essence,  "  a  tax  on  the  land  and  all  the  various  estates  into 
which  the  fee  may  have  been  divided,  or  was  a  tax  on  the 
owner  of  the  land  and  levied  on  the  interest  of  the  owner 
in  it,  and  on  no  other  subordinate  or  incorporeal  interest. 
But  no  tax  was  ever  collected  or  any  land  sold  under  the 
act  of  seizure  and  sale.'" — Hillard,  Law  of  Taxation. 

But,  apart  from  a  unison  of  opinion  as  to  the  methods 
by  which  a  direct  tax  should  be  levied  and  collected  under 
the  Federal  Government,  the  determination  of  what  is  a 
direct  tax  has  not  been  an  easy  matter;  and  the  question 
came  up  for  solution  before  the  United  States  Supreme 
Court  shortly  after  the  adoption  of  the  Constitution,  or 
in  1794,  in  a  case  that  has  become  historic  in  the  annals 
of  American  jurisprudence. 

Congress  having  imposed  a  tax  on  pleasure  carriages — 
or  chariots,  as  they  were  then  termed — its  collection  was 
resisted  by  one  Hylton,  of  Virginia,  on  the  ground  that 


*  Dunbar,  Direct  Tax  of  1861,  Quarterly  Journal  of  Economics, 
July,  1889. 


THE  CARRIAGE  TAX.  361 

such  a  tax  was  a  direct  tax,  and  had  not  been  apportioned 
among  the  States,  as  required  by  the  Constitution.*  The 
court  held  that  the  tax  in  question  was  to  be  considered 
as  a  tax  on  the  expenses  of  living  and  not  a  direct  tax 
within  the  meaning  of  the  Constitution,  as  the  evils  which 
would  attend  its  apportionment  according  to  population 
would  be  so  great  "  that  the  Constitution  could  not  have 
intended  that  an  apportionment  should  be  made."  "  The 
Constitution,"  said  the  Court,  "  evidently  contemplated  no 
taxes  as  direct  taxes,  but  such  as  Congress  could  lay  in 
proportion  to  the  census.  A  tax  on  carriages  can  not  be 
laid  by  the  rule  of  apportionment  without  very  great  in- 
equality and  injustice.  Suppose  two  States,  equal  in  cen- 
sus, to  pay  eighty  thousand  dollars  each,  by  a  tax  on  car- 
riages of  eight  dollars  on  every  carriage,  and  in  one  State 
there  are  one  hundred  carriages  and  in  the  other  one  thou- 
sand. A,  in  one  State,  would  pay  for  his  carriage  eight 
dollars ;  but  B,  in  the  other  State,  would  pay  for  his 
carriage  eighty  dollars."  (Opinion  by  Justice  Chase,  3 
DalL,  171.) 

These,  and  other  decisions  of  the  United  States  Su- 
preme Court,  have  accordingly  been  regarded  as  affirming, 
that  within  the  meaning  of  the  Constitution  of  the  United 
States  there  are  only  two  forms  of  taxation  that  can  be 
considered  as  direct — namely,  a  capitation  or  poll  tax,  sim- 
ply, and  without  regard  to  property,  profession,  or  any 
other  circumstance,  and  a  tax  on  land ;  and  that  no  other 
taxes  can  be  regarded  as  direct  by  the  Federal  authorities. 
It  is  also  worthy  of  note  that  since  the  decision  in  the  car- 
riage case  in  1796,  Congress,  in  the  few  instances  in  which 
it  has  imposed  a  tax  which  it  recognised  as  direct,  has  never 
made  it  applicable  to  any  objects  other  than  real  estate  and 
slaves. 

The  following  additional  memoranda  are  pertinent  to 
this  discussion :  While  the  carriage  case  was  pending  before 
the  United  States  Supreme  Court  in  1796,  Mr.  Madison, 
who  participated  in  the  convention  that  framed  the  Con- 
stitution, wrote  to  the  effect  that  the  action  of  Congress 
in  imposing  this  tax  was  constitutional,  but  that  he  doubted 
whether  the  court  would  so  regard  it.      Hamilton,  who 

*  Hylton  vs.  The  United  States,  3  Dallas,  171. 
24 


362    THE  THEORY  AND   PRACTICE   OF  TAXATION. 

appeared  as  one  of  the  counsel  for  the  United  States  in  this 
case,  also  left  behind  him  a  legal  brief  in  which  he  says: 
"  What  is  the  distinction  between  direct  and  indirect  taxes  ? 
It  is  a  matter  of  regret  that  terms  so  uncertain  and  vague 
on  so  important  a  point  are  to  be  found  in  the  Constitu- 
tion. We  shall  seek  in  vain  for  any  antecedent  settled  legal 
meaning  to  the  respective  terms.  There  is  none.  We  shall 
be  as  much  at  a  loss  to  find  any  disposition  of  either  which 
can  satisfactorily  determine  the  point."  In  his  argument 
on  behalf  of  the  Government  in  the  carriage  case,  Hamil- 
ton, however,  mentioned  such  taxes  which  should  be  con- 
sidered as  direct;  namely,  direct  capitation  taxes,  taxes  on 
land  and  buildings,  and  general  assessments,  whether  on 
the  whole  property  of  individuals,  or  on  their  whole  real 
or  personal  estate.*  And  in  rendering  the  decision  in  the 
income-tax  case  of  Springer  vs.  United  States,  Justice 
Swayne  also  added  to  our  historical  information  on  this 
subject  by  remarking,  that  "  the  question  of  what  is  a  direct 
tax  is  one  exclusively  of  American  jurisprudence,"  which 
is  the  same  thing  as  saying  that  the  system  of  American 
taxation  is  so  peculiar,  that  the  question  involved  has  never 
been  made  a  subject  of  legal  controversy  and  discussion 
under  any  other  or  foreign  system  of  taxation. 

This  statement  of  Judge  Swayne  is  one  of  a  number 
of  illustrations  that  will  confront  the  student  of  the  exist- 
ing American  system  of  taxation — if,  indeed,  it  is  worthy 
of  being  called  a  system — showing  how  the  makers  and  ad- 
ministrators of  tax  laws  in  the  United  States  have  drifted, 
as  it  were,  into  uses  and  practices  which  long  usage  has 
made  to  appear  almost  as  of  self-evident  validity,  but  which 
find  no  precedent  in  the  experience  or  system  of  other 
countries,  and  no  solid  foundation  in  any  correct  economic 
philosophy,  f 

•Works  of  Alexander  Hamilton  (Lodge's  edition),  vol.  vii, 
p.  328. 

t  Since  the  statement  of  Judge  Swayne  (above  referred  to) 
was  made,  a  decision  has  been  rendered  by  the  Privy  Council  of 
Great  Britain,  in  which  the  recognition  of  direct  taxation  and  its 
method  of  incidence  by  British  jurisprudence  is  taken  for  granted; 
for  in  concurrence  with  a  decision  rendered  by  the  full  bench  of 
judges  concerning  an  opinion  of  one  of  their  members,  wherein 
he  says,  in  speaking  of  a  point  that  had  been  raised,  that  a  tax 
must  be  general  in  order  to  be  a  direct  tax,  they  reject  that  view, 


DIRECT  INCOME  TAXES.  363 

There  were  also  two  reasons  and  two  points  of  view  in 
the  Hylton  case  on  which  the  judgment  of  the  court  might 
have  been  predicated.  One  was  that  Hylton  possessed  one 
hundred  and  twenty-five  carriages,  which  warranted  the 
inference  that  they  were  hackney  carriages,  kept  and  used 
for  hire,  and  that  the  tax  levied  on  each  carriage  ultimately 
fell  on  the  consumer  and  not  on  the  owner  (Hylton)  him- 
self; or,  in  other  words,  the  tax  in  question  was  a  tax  on 
transportation,  and,  as  such,  capable  of  transference  to  the 
person  carried,  and  therefore,  when  imposed  on  the  car- 
rier, was  an  indirect  and  not  a  direct  tax.  Another  point 
is,  that  a  tax  on  carriages  has  not  the  compulsory  element 
which  pertains  to  all  direct  taxes,  as  their  ownership  and 
use  are  optional,  which  is  the  special  characteristic  of  all 
indirect  taxes. 

Substantially  the  same  question  involved  in  the  car- 
riage case  came  up  again  (in  1874)  before  the  same  court 
(Springer  vs.  United  States,  12  Otto,  103  U.  S.  Eeports, 
p.  856),  when  a  citizen  of  Illinois  resisted  the  payment 
of  a  national  income  tax  on  the  ground  that  such  a  tax 
was  a  direct  tax;  and  not  being  levied  in  the  manner  pre- 
scribed by  the  Constitution,  was  not  legal  and  valid.  From 
an  economic  point  of  view  such  a  tax,  as  has  been  before 
shown,  is  and  always  has  been  regarded  as  a  direct  tax; 
and  on  the  hearing  the  plaintiff  adduced  in  support  of  his 
position  the  testimony,  as  found  in  their  writings,  of  almost 
every  acknowledged  authority  on  political  economy  or 
finance  in  the  English  language — Adam  Smith,  Ricardo, 
Mill,  Wayland,  Brande,  Say,  Perry,  as  well  as  the  Encyclo- 
paedia Britannica  and  almost  every  other  cyclopgedia  or 
dictionary  of  English  or  American  origin.*  The  court, 
however,  held  as  before,  that  under  the  definition  of  a  direct 
tax,  as  expressed  in  the  Constitution,  the  income  tax  was 

inasmuch  as  it  "  would  deny  the  character  of  a  direct  tax  to  the 
income  tax  of  this  country — Great  Britain — which  is  always  spoken 
of  as  such,  and  is  generally  looked  upon  as  a  direct  tax  of  the  most 
obvious  kind ;  and  it  would  run  counter  to  the  common  understand- 
ing of  men  on  this  subject,  which  is  one  main  clew  to  the  meaning 
of  the  Legislature." 

*  In  all  the  debates  in  the  British  Parliament  it  is  doubtful 
if  any  British  statesman  can  be  named  who  has  ever  spoken  of 
an  income  tax  as  other  than  a  direct  tax.  The  same  may  be 
also   affirmed   of   French   authors   and   statesmen.      The    following 


364    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

not  direct  but  indirect,  and  accordingly  that  its  imposition 
was  not  unconstitutional.  The  following  was  the  exact 
language  of  the  Court : 

"  Our  conclusions  are  that  direct  taxes  within  the  mean- 
ing of  the  Constitution  are  only  capitation  taxes,  as  ex- 
pressed in  that  instrument,  and  taxes  on  real  estate;  and 
that  the  tax  of  which  the  plaintiff  complains"  (i.e.,  a 
direct  tax)  "  is  within  the  category  of  an  excise  or  duty." 

Whether  warranted  or  not,  the  drift  of  public  opinion 
in  the  United  States  has  been,  that  the  decision  of  its  Su- 
preme Court  in  the  Springer  case  in  1874,  and,  to  a  certain 
extent,  in  all  previous  cases  touching  the  constitutionality 
of  an  income  tax,  was  made  under  the  pressure  of  an  ap- 
parent political  necessity.     Had  the  decision  been  to  the 

citations  of  the  opinions  of  various  recognised  authorities  are  illus- 
trative : 

"  The  taxes  which  it  is  intended  should  fall  indifferently  upon 
every  species  of  revenue  are  capitation  taxes." — Adam  Smith. 

James  Mill,  under  the  title  of  "  Direct  taxes,  which  are  de- 
signed to  fall  upon  all  sources  of  income"  says,  "  Assessed  taxes, 
poll  taxes,  and  income  taxes  are  of  this  description." — Elements 
of  Political  Economy,  p.  267. 

J.  R.  McCulloch  divides  his  work  on  Taxation  into  two  parts: 
Part  I,  on  direct  Taxes,  and  Part  II,  on  indirect  taxes;  and  under 
the  head  of  "  Direct  Taxes  "  he  treats  of  "  taxes  on  property  and 
income." 

Dr.  Lieber,  referring  to  the  different  modes  of  levying  taxes, 
says :  "  The  first  way  is  direct — to  determine  from  the  statement 
of  the  parties  concerned,  or  from  official  information,  tlie  net 
income  of  persons.  This  kind  of  taxes  are  called  direct." — Encyclo- 
pcedia  Americana. 

"  Taxes  are  either  direct  or  indirect.  A  direct  tax  is  one  Avhich 
is  demanded  from  the  very  persons  who  it  is  intended  or  desired 
should  pay  it.  Direct  taxes  are  either  on  income  or  expenditure. 
.  .  .  Most  taxes  on  expenditure  are  direct,  being  imposed  not  on 
the  producer  or  seller  of  an  article,  but  immediately  on  the  con- 
sumer. .  .  .  The  window  tax  is  a  direct  tax  on  expenditure,  so 
are  taxes  on  horses  and  carriages." — Jolin  Stuart  Mill,  Political 
Economy,  vol.  ii. 

When  Sir  Robert  Peel  brought  forward  his  plan  for  an  income 
tax  in  1842,  he  said:  "Indirect  taxation  has  reached  its  limits, 
and  can  no  longer  be  relied  on.  My  plan  is  this,  to  levy  an  income 
tax,"  etc. — Parliamentary  Debates,  Iri,  1^28;  Ann.  Rey.,  181)2,  7', 
73.  And  Lord  John  Russell  said  in  reply :  "  To  resort  to  the  des- 
perate measure  of  an  income  tax  in  such  circumstances  is  nothing 
less  than  to  proclaim  to  the  world  that  your  resources  are  ex- 
hausted, that  indirect  taxation  has  reached  its  limits."  etc. — Par- 
liamentary Debates,  Ivii,  86,  1^7;  Ann.  Reg.,  18.^2,  77,  75. 


INCOME  TAX  OF   1894.  365 

effect  that  the  income  tax  was  a  direct  tax,  and  any  method 
of  levying  it  other  than  that  prescribed  by  the  Constitution 
— i.  e.,  according  to  population — was  unconstitutional,  the 
Government  would  have  been  forever  practically  deprived 
of  an  effective  instrumentality  for  raising  revenue  which 
might  be  most  desirable  in  cases  of  emergency.  Immense 
sums  which  had  been  paid  under  protest  as  income  taxes 
would  also  have  been  pressed  for  repayment  in  case  the 
decision  had  been  otherwise,  to  the  serious  embarrassment 
of  the  national  Treasury. 

In  harmony  with  the  above  decisions,  the  United  States 
Supreme  Court  has  decided  that  neither  taxes  on  distilled 
spirits  (United  States  vs.  Singer,  15  Wall.,  Ill),  nor  suc- 
cession duties  on  the  devolution  of  title  to  real  estate 
(Scholey  vs.  Eew,  23  Wall.,  331),  nor  taxes  on  the  notes 
of  State  banks  (Veazie  Bank  vs.  Fenno,  8  Wall.,  533),  nor 
taxes  on  the  receipts  of  insurance  companies  from  premiums 
and  assessments  (Insurance  Company  vs.  Soule,  7  Wall., 
433)  are  direct  taxes;  but  that  all  such  taxes  are  imposts 
and  excises,  and  subject,  therefore,  to  the  requirement  as 
to  uniformity,  but  not  subject  to  the  requirement  of  appor- 
tionment. 

Important,  interesting,  and  instructive  from  a  consti- 
tutional, legal,  and  economic  point  of  view,  as  was  the  ex- 
perience of  the  United  States  in  respect  to  direct  taxation, 
prior  to  1894,  the  sequel  of  events  and  experience  in  respect 
to  this  question  and  its  involved  problems  has  been  no  less 
important  and  worthy  of  narration. 

By  an  enactment  of  Congress,  August  18,  1894,  estab- 
lishing an  income  tax  for  the  United  States,  a  tax  of  ttuo 
per  cent  was  imposed  on  the  gains,  profits,  and  income  of 
persons  derived  from  any  kind  of  property,  including  rent 
and  the  growth  and  produce  of  lancls,  and  profits  made 
upon  the  sale  of  land  if  purchased  within  two  years.  Every 
element  that  could  make  real  or  personal  property  a  source 
of  value  to  an  owner  was  taxed.  An  excise  duty  was  also 
imposed  upon  income  derived  from  any  profession,  trade, 
employment,  or  avocation.  The  tax  upon  persons  gen- 
erally was  not  upon  their  entire  income,  but  on  the  excess 
over  and  above  the  sum  of  $4,000.  All  persons  having  in- 
comes of  $4,000  or  under  were  exempt.  The  whole  burden 
of  the  tax,  it  was  estimated,  would  fall  on  less  than  two 


366  THE  THEORY  AND  PRACTICE  OF  TAXATION. 

per  cent  of  the  population  of  the  country.  That  the  Gov- 
ernment practically  conceded  that  such  a  feature  of  the 
act  was  pre-eminently  class  legislation  is  evident  from  the 
following  extract  from  a  statement  made  in  a  brief  by  the 
Attorney  General  of  the  United  States:  "Congress,"  he 
says,  "has  adopted  as  the  minimum  income  for  the  pur- 
pose of  taxation  the  limit  of  $4,000.  This  limit  may  be 
said  to  divide  the  upper  from  the  loiver-  middle  class,  finan- 
cially speaking,  in  the  larger  cities,  or  to  divide  the  middle 
class  from  the  wealthy  in  the  country  districts."  * 

As  might  have  been  expected,  the  provisions  of  this 
enactment,  which  could  not  be  fairly  considered  pertinent 
and  relevant  to  a  just  and  equitable  system  of  income 
taxation,  occasioned  much  dissatisfaction  among  business 
men  and  the  financial  authorities  of  the  country  generally ; 
and  measures  were  at  once  initiated  to  test  before  the 
proper  legal  tribunals — i.  e.,  the  courts  of  the  United 
States — the  constitutionality  of  the  statute.  The  most 
important  and  immediate  representatives  of  this  action 
were  the  Farmers'  Loan  and  Trust  Company  and  the  Con- 
tinental Trust  Company,  of  New  York — two  of  the  largest 
trust  companies  in  the  United  States.  It  is  also  worthy 
of  note  in  this  connection  that  the  above-named  companies, 
before  taking  any  steps  to  test  the  validity  of  the  act  in 
question,  complied  with  all  its  provisions;  no  collector  of 
internal  revenue  or  any  public  officer  of  the  United  States 
having  been  made  a  party,  or  any  injunction  sought  from 
the  courts  to  restrain  the  collection  of  the  tax. 

The  basis  of  action  of  the  above-named  parties,  as  rep- 
resented by  some  of  the  most  eminent  members  of  the  legal 
profession  in  the  country,f  was  substantially  as  follows: 
Each  of  them,  and  a  large  number  of  other  like  organiza- 
tions— insurance  companies,  saving  banks,  and  trusts — hold 
as  investments  of  capital  stock,  earnings,  and  profits,  and 
as  trustees  for  minors,  widows,  individuals,  copartnerships, 
and  corporations  too  numerous  to  mention,  resident  in  the 
United  States  and  elsewhere,  large  amounts  of  real  estate, 

*  Brief  on  behalf  of  the  United  States  (by  Mr.  Olney),  p.  85. 

t  Messrs.  Joseph  H.  Choate,  Clarence  A.  Seward,  William  D. 
Guthrie,  Benjamin  H.  Bristow,  David  Wilcox,  and  Charles  Steele. 
For  the  United  States,  James  C.  Carter  and  Richard  Olney,  the 
Attorney  General. 


STATES  PROTECTED   FROM  EXACTIONS.  S6l 

situated  in  the  various  States  of  the  Federal  Union,  and 
amounting  in  aggregate  value  to  hundreds  of  millions  of 
dollars.  The  rents  and  income  of  this  real  estate,  also 
annually  amounting  in  the  aggregate  to  large  sums,  are  col- 
lected and  received  by  the  above-mentioned  organizations, 
and  held  by  them  in  their  various  fiduciary  capacities. 

The  first  point  of  importance  under  such  a  state  of 
affairs  to  which  attention  is  asked  is,  that  taxes  levied  or 
laid  by  the  Federal  Government  are  recognised  and  ad- 
mitted (in  virtue  of  repeated  decisions  and  assumptions 
of  the  United  States  Supreme  Court)  to  be  typical  forms 
of  direct  taxation,  and  as  such  under  a  clear  and  care- 
fully worded  provision  of  the  Federal  Constitution  must 
be  apportioned  among  the  several  States  according  to  their 
respective  population.*  On  this  point,  therefore,  there 
could  obviously  be  no  legal  contention. 

It  is  now  well  recognised  that  this  provision  of  the  Con- 
stitution, after  full  discussion  and  careful  wording  on  the 
part  of  its  framers,  was  adopted  in  order  to  protect  to  the 
States,  which  in  entering  into  union  were  surrendering  to 
the  prospective  Federal  Government  so  many  sources  of 
income,  the  power  of  direct  taxation,  and  so  preclude  a 
combination  of  States  from  exacting  tribute  from  other 
States,  f 

*  "  Representatives  and  direct  taxes  shall  be  apportioned  among 
the  several  States  which  may  be  included  within  this  Union  ac- 
cording to  their  respective  numbers." — Constitution  of  the  United 
States,  Article  I,  section  2. 

t  "  The  founders  anticipated  that  the  expenditure  of  the  States, 
their  counties,  cities,  and  towns,  would  chiefly  be  met  by  direct 
taxation  on  accumulated  property,  while  they  expected  that  those 
of  the  Federal  Government  would  be  for  the  most  part  by  indirect 
taxes;  and  in  order  that  the  power  of  direct  taxation  of  the  Gen- 
eral Government  should  not  be  exercised  except  on  necessity,  and 
when  the  necessity  arose  should  be  so  exercised  as  to  leave  the 
States  at  liberty  to  discharge  their  respective  obligations,  and 
should  not  be  so  exercised  unfairly  and  discriminated  as  to  par- 
ticular States  or  otherwise  by  a  mere  majority  vote,  possibly  of 
those  whose  constituents  were  intentionally  not  subjected  to  any 
part  of  the  burden,  this  qualified  grant  was  made.  Those  who 
made  it  knew  that  the  power  to  tax  involved  the  power  to  destroy, 
and  that  the  only  secui'ity  against  the  abuse  of  this  power  is 
found  in  the  structure  of  the  Government  itself.  In  imposing  a 
tax  the  Legislature  acts  upon  its  constituents.  This  is  in  general 
a   sufficient   security   against   erroneous    and    oppressive   taxation, 


368    THE  THEORY  AND   PRACTICE  OF  TAXATION. 

The  next  point  of  contention  in  order  of  importance  in 
the  case  as  presented  to  the  United  States  Supreme  Court 
was,  Did  the  provisions  of  the  income-tax  act  of  1894,  im- 
posing a  tax  of  two  per  cent  upon  the  gains,  profits,  and 
income  derived  from  all  kinds  of  property — including  rent 
and  the  gains  and  profits  accruing  from  the  growth,  profits, 
or  sale  of  land — involve  and  create  a  tax  which  must  neces- 
sarih^  be  deemed  a  direct  tax  on  real  estate  (land),  and 
which  not  being  apportioned  (levied)  according  to  the 
provision  of  the  Constitution  render  the  entire  act  impos- 
ing an  income  tax  unconstitutional  and  void? 

The  precise  or  original  question  involved,  it  was  ad- 
mitted, was  one  on  which  the  Federal  Government  had 
really  never  been  heard,*  and  was  first  brought  before  the 
United  States  Supreme  Court  for  a  hearing  and  adjudica- 
tion in  April,  1895.  On  that  occasion  the  court  held  that 
the  provisions  of  the  act  of  August  15,  1895,  were  uncon- 
stitutional, so  far  "  as  they  purport  to  impose  a  tax  on  the 
rent  or  income  of  real  estate."  It  was,  however,  equally 
divided  on  the  following  questions,  and  expressed  no  opin- 
ion in  regard  to  them  : 

(1)  Whether  the  void  provisions  invalidated  the  whole 
act;  (2)  whether,  as  to  the  income  from  personal  property 
as  such,  the  act  is  unconstitutional  as  levying  direct  taxes; 
(3)  whether  any  part  of  the  tax,  if  not  considered  as  a 
direct  tax,  is  invalid  for  want  of  uniformity. 

The  court,  early  in  its  history,  adopted  the  practice  of 
requiring,  if  practicable,  constitutional  questions  to  be 
heard  by  a  full  court,  in  order  that  the  judgment  in  such 
eases  might,  if  possible,  be  the  decision  of  the  majority 
of  the  whole  court.  And  as  the  court  was  not  full,  at  the 
first  hearing  in  April,  and  as  four  judges  did  not  concur 
in  the  opinion  then  rendered,  a  rehearing  was  granted  by 
the  court  in  the  month  following  (May  6th,  7th,  8th)  ;  in 


and  they  retained  this  security  by  providing  that  direct  taxation 
and  representation  in  the  lower  House  of  Cono^ress  should  be  ad- 
justed on  the  same  measure." — Chief -Jnstice  Fuller. 

*  None  of  the  previous  decisions  of  the  court  "  discussed  the 
question  whether  a  tax  on  the  income  of  personalty  is  equivalent 
to  a  tax  on  that  personalty;  but  all  held  real  estate  liable  to 
direct  taxation  only  so  as  to  sustain  a  tax  on  the  income  of  realty 
on  the  ground  of  being  an  excise  or  duty." — Chief-Justice  Fuller. 


ARGUMENT  FAVORING  TAX.  369 

the  announcement  of  which  the  Chief  Justice  remarked  that 
"  the  importance  to  the  Government  of  the  new  views  of 
its  taxing  power  can  hardly  be  exaggerated." 

In  advocating  the  constitutionality  and  rightfulness  of 
the  provisions  of  the  income  tax  of  1894,  the  then  United 
States  Attorney  General,  Hon.  Eichard  Olney,  on  behalf  of 
the  Government,  made  in  part  the  following  argument : 

"  What  is  this  "  (contested)  "  tax  in  its  true  value  and 
essence  ?  It  is  an  assessment  upon  the  taxpayer  on  account 
of  his  money-spending  power  as  shown  by  his  revenue  for 
the  year  preceding  the  assessment.  It  is  not  a  property 
tax  in  any  sense  or  of  any  sort.  Yet  this  is  the  sort  of 
tax  which  is  called  a  tax  on  real  estate  for  no  other  reason 
than  that  last  year's  rents  form  a  part  of  the  yardstick  by 
which  this  year's  money-spending  capacity  is  measured ! 
A  greater  error,  I  submit,  could  not  easily  be  justified. 
My  Lord  Coke  is  quoted  to  the  effect  that  a  grant  in  fee 
of  the  profits  of  land  passes  the  land  itself.  Other  cita- 
tions are  always  interesting,  and  state  a  rule  of  law  which  is 
indisputable  and  of  universal  acceptance.  But  what  is  their 
relevancy  to  the  case  in  hand  ?  They  relate  to  grants  taking 
effect  in  future — to  grants  taking  effect  from  the  date  or 
delivery  of  the  deed,  or  from  the  probate  of  the  devise,  and 
carrying  all  after-accruing  rents  as  a  matter  of  course.  But 
what  this  case  is  concerned  with  is  rents  that  have  not  only 
become  due,  but  have  actually  been  received  by  the  land- 
lord. Does  any  one  pretend  that  rents  thus  received  would 
pass  by  a  grant  of  the  estate  that  has  yielded  them?  Of 
course  not,  and  why?  Because,  by  falling  due  and  being 
collected,  they  have  become  severed  from  the  realty,  and 
have  become  personal  property — money  in  the  landlord's 
pocket,  like  any  other  money.  iSTothing  is  gained,  however, 
by  belittling  or  evading  an  argument,  and  I  have  no  in- 
tention of  doing  either.  The  strength  of  the  plaintiff's 
claim  is  in  the  proposition  that  the  value  of  land  is  in  its 
use;  that  rents  are  the  pecuniary  equivalent  of  the  use, 
and  that,  therefore,  to  tax  rents  is  in  substance  and  effect 
to  tax  the  land  itself.  This  is  what  may  be  called  a  fetch- 
ing proposition.  How  much  truth  is  there  in  it,  and  how 
much  of  applicability  to  the  present  case?  There  is  this 
much  of  truth  in  it :  that  a  tax  upon  rents  to  become  due — 
to  accrue  in  the  future — may  well  be  deemed  a  tax  on  the 


370    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

estate  itself.  Such  accruing  rents  are  like  growing  crops, 
an  inseparable  part  of  the  land,  and  whatever  is  a  charge 
upon  them  is  necessarily  a  charge  upon  the  land.  But  the 
proposition  stated  has  no  application  whatever  to  the  pres- 
ent case,  because  the  tax  it  has  to  do  with  is  a  tax  in 
respect  to  rents  already  due  and  collected,  and  in  all  prob- 
ability either  spent  or  transformed  into  other  tangible  prop- 
erty. How  can  a  tax  in  respect  to  such  rents  be  said  to  be 
a  tax  upon  the  real  estate  producing  them?  When  they 
become  due  and  are  paid,  just  as  when  crops  are  harvested ; 
when  either  process  is  complete,  a  new  and  distinct  item 
of  property  comes  into  existence,  and  the  landlord's  prop- 
erty realizes  a  corresponding  accretion." 

In  rejoinder  the  counsel  for  the  appellants  maintained 
that  under  the  income-tax  enactment  in  question  (i.  e.,  of 
August  28,  1894)  a  tax  was  imposed  upon  income  "de- 
rived not  merely  from  business,  but  also  expressly  upon 
that  derived  from  property,  and  therefore  directly  upon 
the  property  producing  the  income,  whether  real  or  per- 
sonal." Notably  is  this  the  case  with  a  tax  upon  "  rents  " 
and  the  "  growth  and  produce  of  land."  It  taxes  every 
element  of  value  of  the  land  which  the  owner  can  realize 
from  third  parties.  It  must  be  clear  that  a  tax  upon  what 
gives  the  land  value  is  a  tax  upon  the  land  itself.  In  the 
words  of  Hamilton,  "  What  in  fact  is  property  but  a  fiction 
without  the  beneficial  use  of  it  ?  "  In  many  cases,  indeed, 
the  income  or  annuity  is  the  property  itself.  As  one  of  the 
justices  said  in  the  Hylton  case,  "  Land,  independently  of 
its  produce,  is  of  no  value."  It  scarcely  needs  argument  to 
establish  that  anything  which  affects  every  element  that 
gives  an  article  its  value,  in  the  eye  of  the  law,  affects  di- 
rectly the  article  itself.  In  illustration  of  this  many  de- 
cisions, mainly  of  the  United  States  Supreme  Court,  were 
cited,  of  which  the  following  are  examples : 

In  Brown  vs.  Maryland,  12  Wheaton,  it  was  held  by  the 
United  States  Court  that  a  tax  on  the  occupation  of  an 
importer  is  the  same  as  a  tax  on  imports,  and  was  there- 
fore void. 

In  Weston  vs.  Charleston,  2  Peters,  it  was  held  that  a 
tax  upon  the  income  of  United  States  securities  was  a  tax 
upon  the  securities  themselves,  and  equally  inadmissible. 

In  Almy  vs.  California,  2-4  Howard,  it  was  held  that  a 


REJOINDER  AGAINST  THE  TAX.  371 

duty  on  a  bill  of  lading  was  the  same  thing  as 'a  duty  on 
the  article  which  it  represents. 

In  Cook  vs.  Pennsylvania,  97  United  States,  it  was  held 
that  a  tax  upon  the  amount  of  sales  of  goods  made  by  an 
auctioneer  was  a  tax  upon  the  goods  sold. 

In  Kailroad  Company  vs.  Jackson,  7  Wallace,  it  was 
held  that  a  tax  upon  the  interest  payable  upon  bonds  was  a 
tax  not  upon  the  debtor,  but  upon  the  security,  the  bonds. 

In  Philadelphia  Steamship  Company  vs.  Pennsylvania, 
123  United  States,  it  was  held  that  a  tax  upon  the  income 
received  from  interstate  commerce  was  a  tax  upon  the 
commerce  itself,  and  equally  unauthorized. 

"  If  a  man  seized  of  lands  in  fee  by  his  deed  granteth 
to  another  the  profit  of  those  lands  to  have  and  to  hold  to 
him  and  his  heires,  the  whole  land  itselfe  doth  passe;  for 
what  is  the  land  but  the  profits  thereon'?"  (Coke  upon 
Littleton,  the  accepted  rule  of  law  in  every  court  in  Eng- 
lish Christendom.) 

A  devise  of  the  interest  or  of  the  rents  and  profits  is  a 
devise  of  the  thing  itself  oiit  of  which  that  interest  on  those 
rents  and  profits  may  issue  (Patterson  vs.  Ellis,  II  Wen- 
dal). 

It  seems  clear,  therefore,  that  the  weight  of  judicial 
opinion  as  expressed  in  the  judgments  of  the  highest  courts, 
both  in  the  United  States  and  England,  was  to  the  effect 
that  the  tax  imposed  under  the  United  States  act  of  August, 
189-i,  on  the  income  from  the  use,  profits,  and  sales  of  land 
was  a  direct  tax,  and,  not  being  apportioned  in  accordance 
with  a  strict  provision  of  the  Federal  Constitution  in  respect 
to  the  levy  and  collection  of  said  tax,  was  necessarily  un- 
constitutional and  void.* 

Apart  from  the  leading  element  in  this  celebrated  case, 
and  on  which  the  final  decision  of  the  court  was  mainly 
based,  was  that  provisions  in  the  act  of  1894  establishing 

*  The  following  rejoinder  by  one  of  the  counsel  for  the  appli- 
cants (Mr.  Choate)  to  a  portion  of  the  argument  made  by  the 
Attorney  General  (Mr.  Olney),  and  before  cited,  is  pertinent  and 
instructive,  as  respects  the  much-vexed  question  as  to  the  situs 
of  property  for  the  purpose  of  tax  administration: 

"  The  Attorney  General  says,  '  When  a  man  has  got  the  money 
in  his  pocket  it  is  no  longer  rent.'  One  thing  I  would  say  about 
that  is.  that  if  you  are  going  after  rent  as  money,  the  tax  is  on 
personal   property,   and   should   be   apportioned.     But   the  answer 


372    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

an  income  tax,  being  in  the  nature  of  direct  taxation,  and 
the  same  being  not  assessed  in  accordance  with  the  require- 
ments of  the  Federal  Constitution,  were  void  in  effect. 
The  constitutionality  of  the  entire  act  was  also  questioned 
on  the  ground  that  it  violated  the  constitutional  require- 
ments that  "  all  duties,  imposts,  and  excises  shall  be  uni- 
form throughout  the  Tnited  States."  Thus,  for  example, 
it  taxed  the  income  of  certain  companies  and  associations, 
"  no  matter  how  created  or  organized,"  at  a  higher  rate 
than  the  income  of  individuals  and  partnerships  derived 
from  precisely  similar  property;  and  denied  to  individuals 
deriving  their  income  from  shares  in  certain  corporations 
and  associations  the  benefit  of  the  exemption  of  $4,000 
granted  to  all  other  persons  interested  in  similar  property 
and  business,  and  the  like.  These  features  of  the  act  of 
1894,  although  constituting  most  important  and  instruc- 
tive contributions  to  the  general  subject  of  "  taxation,"  are 
not,  however,  so  pertinent  to  the  immediate  subject  under 
consideration  as  to  require  at  present  any  extended  dis- 
cussion. 

Conclusion. — As  the  result  of  the  hearing  and  dis- 
cussions involving  the  constitutionality  of  the  income-tax 
statute  of  August  28,  1894,  the  United  States  Supreme 
Court,  a  majority  of  its  members  concurring,  gave  judg- 
ment as  follows : 

1.  We  adhere  to  the  opinion  already  announced, 
that  taxes  ox  real  estate  being  indisputably  direct 

is  that  the  tax  does  not  go  after  the  rent  as  money  in  the  tax- 
payer's pocket.  The  act  of  1894  (section  27)  specifies  the  rents 
as  a  cardinal  part  and  element  of  this  income  return,  and  every 
man  who  goes  up  to  make  return  has  to  state  under  oath  what 
rent  he  got  last  year.  This  fiction — this  difference  between  the 
name  and  the  thing,  between  the  substance  and  the  shadow,  urged 
by  the  Attorney  General — is  that,  though  you  can  not  tax  rent, 
you  can  tax  the  money  in  the  owner's  pocket  received  from  rent. 
If  there  is  one  factitious  argument,  one  pretence  of  a  reason,  one 
attempt  to  make  a  distinction  without  a  difference  that  this  court 
has  uniformly  stamped  upon  with  all  its  might,  it  is  just  that. 
The  court  has  repeatedly  decided  that  such  an  argument  is  wholly 
unsound.  What  did  the  court  mean,  in  Brown  vs.  Maryland,  when 
it  held  that  a  tax  on  the  occupation  of  an  importer  is  the  same 
as  a  tax  on  imports  and  is  therefore  void?  It  is  the  source,  the 
substance,  that  the  act  strikes  at,  that  the  court  always  looks  to, 
and  always  has  looked  to,  in  any  form  and  ease  that  has  ever 
come  before  it  until  now." 


DECISION  OF  THE  COURT.  373 

TAXES,   TAXES   ON   THE   RENTS   OR   INCOME   OF   REAL  ESTATE 
ARE  EQUALLY  DIRECT  TAXES. 

2.  We  are  OF  THE  OPINION  THAT  TAXES  ON  PERSONAL 

property,  or  on  the  income  of  personal  property, 
are  likewise  direct  taxes. 

3.  The  tax  imposed  by  sections  twenty-seven  to 
thirty-seven,  inclusive,  of  the  act  of  1894,  so  far 
as  it  falls  on  the  income  of  real  estate  and  of  per- 
sonal property,  being  a  direct  tax  within  the  mean- 
ING OF  THE  Constitution,  is  therefore  unconstitu- 
tional AND  VOID,  because  NOT  APPORTIONED  ACCORDING 
TO  REPRESENTATION.  AlL  THOSE  SECTIONS,  CONSTITUT- 
ING ONE  ENTIRE  SCHEME  OF  TAXATION,  ARE  NECESSARILY 
INVALID. 

A  brief  word  more  is  desirable  to  complete  the  record 
of  the  curious  and  instructive  experience  of  the  United 
States  in  respect  to  the  enactment  and  administration  of 
direct  taxation. 

Theoretically  an  almost  ideal  system,  especially  if  made 
universal  in  its  incidence  and  exclusive  of  all  indirect 
taxes,  its  application  under  a  dual  form  of  government, 
such  as  exists  in  the  United  States,  with  a  practical  denial 
of  resort  to  arbitrary  action  in  collection,  such  as  exists  in 
all  despotic  governments,  and  an  accepted  rule  that  neither 
the  "  nation "  nor  the  forty-five  "  States "  shall  tax  an 
instrumentality  of  the  other,  will  be  necessarily  most  per- 
plexing. These  and  other  like  circumstances,  more  espe- 
cially the  inequalities  and  inefficiencies  contingent  on  the 
act  of  1861,  therefore,  render  it  almost  certain  that  direct 
taxation  will  not  hereafter  be  resorted  to  by  the  Federal 
Government  until  all  other  means  of  relief  for  its  treasury 
have  been  exhausted.  With  the  decision  of  the  United 
States  Supreme  Court  in  1896  against  the  taxation  of  land 
incomes  remaining  unimpaired,  as  it  probably  will  be 
unless  the  Federal  Constitution  is  practically  reconstructed, 
the  enactment  by  Congress  of  another  income  tax  which 
will  not  reach  more  than  half  the  incomes  designed  to 
be  reached,  will  probably  not  be  attempted.  When  it  is 
also  considered  that  it  will  be  an  impossibility  to  separate 
the  part  of  incomes  of  great  corporations  which  they  derive 
from  real  estate,  when  they  necessarily  use  real  estate  in 
common  with  other  property  in  order  to  derive  any  income. 


374    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

the  enormous  expense  and  interminable  litigation  contin- 
gent on  any  attempt  on  the  part  of  the  Government  to 
enforce  such  a  law  will  be  almost  beyond  estimate. 

"  Real  "  and  Personal  Taxes. — Direct  taxes  are  also 
spoken  of,  and  in  fact  classified,  as  real  and  personal  taxes. 
"Rear'  taxes  (Latin  res,  thing),  or  taxes  on  realty,  as  is 
the  general  expression,  are  taxes  on  property — generally 
on  things  naturally  characterized  by  immobility — without 
reference  to  the  pecuniary  condition  of  the  owner,  and  hence 
without  taking  his  debts  into  account.  A  tax  on  land  or 
real  estate — houses  and  land — is  a  typical  tax  on  realty; 
and  a  tax  legally  assessed  upon  such  property '  rests,  or  is 
a  lien  upon  it,  irrespective  of  its  ownership. 

Business  taxes  are  regarded  as  real  taxes,  as  they  are 
taxes  on  pursuits  or  occupations  rather  than  on  persons. 
The  same  is  true  of  taxes  on  capital  and  the  rental  value 
of  land  or  buildings.*  The  restriction  on  the  levy  of  direct 
taxation  imposed  by  the  Constitution  of  the  United  States 
on  the  Federal  Government  does  not  apply  to  the  States. 

Personal  taxes  are  taxes  on  persons.  A  poll  or  "  capi- 
tation "  or  "  head  "  tax,  implying  a  uniform  payment  from 
every  poll  or  head  of  some  portion  or  all  the  population  of 
the  State,  would  be  a  typical  personal  tax.  Strictly  speak- 
ing, therefore,  a  personal  tax  can  be  no  other  than  a  poll 
tax  levied  under  the  above  conditions.  What  are  usually 
called  personal  taxes  are  taxes  assessed  or  rated  to  a  per- 
son, not  as  in  the  case  of  a  poll  tax  because  he  is  a  person 
or  citizen,  but  in  virtue  of  the  movable  property — furni- 
ture, clothing,  vessels,  carriages,  animals,  money  at  in- 
terest, stocks  in  corporations,  bonds,  or  negotiable  instru- 
ments and  the  like  belonging  to  him.  It  is  the  individual 
that  the  law  regards  as  the  objective  rather  than  his  per- 
sonal property — which  may  not  be  tangible  or  visible — on 
enforcing  the  tax ;  the  property  being  resorted  to  for  the 
purpose  of  ascertaining  the  amount  of  tax  which  its  owner 
should  pay.  An  income  tax  is  regarded  as  a  personal  tax 
because  it  is  assessed  on  the  income  that  gathers  about  a 
person  irrespective  of  its  source — rents,  interest,  profits. 


* "  Real  estate  for  the  purpose  of  taxation  shall  include  all 
lands  within  this  State,  and  all  buildings  or  other  things  erected 
on  or  affixed  to  the  same." — Statutes  of  Massachusetts. 


REAL  AND  PERSONAL  TAXES.        375 

salaries,  and  the  like.  A  tax  on  land  is  a  tax  on  realty, 
while  a  tax  on  a  mortgage  is  a  personal  tax,  which  is 
equivalent  to  affirming  that  the  former  is  a  thing,  while 
the  latter  is  only  the  representation  or  shadow  of  the 
thing. 

In  levying  taxes  on  realty  the  owner,  as  a  rule,  is  not 
allowed  to  offset  or  reduce  its  valuation  by  the  amount  of 
his  outstanding  indebtedness;  but  in  the  case  of  the  taxa- 
tion of  personal  property  such  an  offset  is  generally  per- 
mitted, on  the  ground  that  a  man  should  be  taxed  only 
upon  what  he  owtis  and  not  upon  what  he  owes;  and  even 
when  not  allowed  by  law,  the  circumstance  of  indebtedness 
is  almost  always  taken  advantage  of  by  persons  assessed, 
for  reducing  valuation  in  making  returns  to  the  tax  offi- 
cials of  the  value  of  their  property.  In  assessing  an  in- 
come tax  a  deduction  is  allowed  for  interest  paid  on  mort- 
gages, and  such  business  expenses  as  lessen  income.  Per- 
sonal expenses,  as  house  rent,  cost  of  living,  and  the  like, 
can  not,  on  the  other  hand,  be  properly  deducted  from 
income  before  it  is  taxed,  because  income  is  sought  for 
and  exists  for  the  purpose  of  defraying  such  expenditures. 
By  the  income-tax  law  of  the  United  States,  enacted  in 
1865,  and  also  in  1894,  deductions  were  allowed  from  the 
amount  of  taxable  income,  of  all  taxes  paid  within  the 
3'ear,  of  all  interest  paid  on  indebtedness,  and  the  rent 
or  rental  value  of  any  homestead  actually  occupied  by  the 
taxpayer. 

One  of  the  most  curious  features  of  recent  tax  experi- 
ences in  the  United  States  has  been  the  extent  to  which 
this  practice,  or  right  of  reducing  valuations  of  personal 
property  for  taxation  by  debts,  has  been  made  the  oppor- 
tunity for  evading  taxation.  Thus,  by  the  very  structure 
of  the  Federal  Government,  its  various  instrumentalities, 
as  heretofore  explained,*  are  necessarily  exempted  from  all 
taxation  by  the  States  of  the  Federal  Union.  Eecognising 
this,  it  has  been  the  habit  of  individuals  to  effect  credit 
purchases  to  a  greater  or  less  amount  of  United  States 
securities  a  short  time  previous  to  the  time  fixed  for  tax 
returns  or  valuation,  and  then  offsetting  the  debts  thus  in- 
curred against  valuation,  evade  the  taxation  on  their  per- 

*  See  Chapters  XI  and  XII. 


376     THE  THEORY   AND   PRACTICE   OF   TAXATION. 

sonal  property  to  which  they  would  otherwise  be  sub- 
jected.* And  for  such  moral  wrong  there  would  appear 
to  be  no  legal  remedy  on  the  part  of  the  State,  except  by 
the  commission  of  a  greater  wrong — namely,  the  prohibi- 
tion of  the  offsetting  of  all  debts  in  tax  valuations ;  or,  what 
is  the  same  thing,  the  im])osing  of  a  discriminating  bur- 
den of  taxation  upon  persons  who,  for  any  cause,  may  be  in 
debt — a  denial  of  equity  which  public  sentiment  in  every 
free  country  will  not  long  tolerate.  A  further  proof  and 
illustration  of  this  averment  may  be  found  in  the  fact  that 
years  ago  the  Constitution  of  Ohio  provided  that  credits, 
or  evidences  of  indebtedness,  should  be  subject  to  taxation 
by  a  uniform  rule ;  and  the  Supreme  Court  of  Ohio  subse- 
quently decided  that  this  did  not  allow  any  offset  of  debts 
owed  against  credits  owned.  But  popular  opinion  was  so 
adverse  that  by  common  consent  this  clause  of  the  Consti- 
tution, as  interpreted  by  the  court,  was  entirely  disregarded 
in  making  up  tax  valuations. 

In  old  English  history  the  division  of  property  into  real 
and  personal  was  wholly  unknown ;  and  all  laws  regulating 
this  species  of  property,  with  a  view  to  taxation  or  inherit- 
ance, are  of  comparatively  modern  origin,  f     It  is  also  in- 

*  When  the  Ferleral  Government  effected  in  November,  1894, 
a  loan  for  $50,000,000,  a  premium  was  paid  on  no  inconsiderable 
amount  for  the  privilege  of  purchase,  or  investment,  so  large  as 
to  net  to  the  purchaser  an  abnormally  low  rate  of  interest — 2.5 
per  centum.  The  explanation  of  this  action  was  that,  apart  from 
the  recognised  value  of  an  unquestionable  security,  the  investment 
carried  with  it  an  exemption  from  a  national  income  tax  of  two 
per  cent,  as  well  as  from  State  and  municipal  taxation ;  so  that 
the  rate  of  interest  accruing  to  the  purchaser  was  not  as  low  as 
it  might  have  seemed  to  be.  and  by  the  holders  and  managers  of 
trust  properties  was  generally  regarded  as  satisfactory. 

t  The  first  authorization  of  local  taxation  in  England  was  for 
the  maintenance  of  the  poor,  and  occurred  in  the  reign  of  Eliza- 
beth. At  that  time  it  seems  to  have  been  assumed  that  there 
was  no  personal  property  in  the  kingdom  capable  of  being  assessed, 
and  that  real  property  was  alone  valuable  property.  Hence  it  was 
enacted  (43  Elizabeth,  cap.  2)  that  overseers  should  be  appointed 
Avho  were  to  raise,  by  taxation  of  every  inhabitant,  parson,  "  and 
of  every  occupier  of  lands,  houses,  tithes  impropriate,  propriations 
of  tithes,  coal  mines,  or  salable  underwoods  in  the  said  parish," 
moneys  for  the  relief  of  the  poor.  No  mention  was  made  of  per- 
sonal property,  and  it  is  probable  that  every  kind  of  property 
then  known  Avas  mentioned  in  the  act.  When  fresh  burdens  were 
necessary  the  principle  adopted  by  the  act  of  Elizabeth  was  con- 


LEGAL  DISTINCTIONS.  377 

teresting  to  note  that  probably  full  one  fourth  of  all  the 
so-called  personal  property  of  this  country — namely,  all 
railroad,  steamship,  telegraph,  telephone  securities — did 
not  have  an  existence  fifty  years  ago. 

As  is  the  case  with  direct  and  indirect  taxes,  the  line 
of  demarcation  between  real  and  personal  property,  and 
consequently  between  real  and  personal  taxes,  is  very  in- 
definite, and  some  very  nice  and  curious  points  in  connec- 
tion therewith  have  been  established  by  usages,  or  court  de- 
cisions. Thus  an  apple  on  the  tree  is  real  estate,  but  when 
fallen  upon  the  ground  it  becomes  personal  property.  Run- 
ning water  accumulated  in  a  pond  is  real  estate,  though  the 
owner  is  not  permitted  to  invest  it  with  the  peculiar  at- 
tribute of  real  estate — namely,  stability — by  permanently 
arresting  its  flow.  In  some  States  the  engines,  water 
wheels,  shafting,  and  even  belts  of  factories  are  real  estate, 
while  looms  and  lathes  are  personal  property.  Stone  in  the 
quarry  is  real  estate,  but  when  thrown  out  by  a  blast  and 
made  ready  for  market  it  becomes  personal  property.  Hop- 
poles,  not  standing,  have  been  decided  to  be  real  estate, 
but  wood  cut  and  corded  for  sale  is  personal  property.  A 
statue  exhibited  for  sale  in  a  workshop  is  personal  prop- 
erty, but  when  placed  upon  a  permanent  foundation  (al- 
though not  fastened  to  it),  as  an  ornament  in  front  of  a 
house,  has  been  held  to  be  a  part  of  the  realty.  Chairs  in 
a  theatre  and  screwed  to  the  floor,  as  they  can  not  stand 
alone,  are  considered  a  part  of  the  realty;  but  gas  fixtures 
and  mirrors,  made  to  order  for  the  house,  and  attached  to 
the  freehold,  but  removable  without  injury  thereto,  are  not 
deemed  a  part  of  the  realty.  Before  emancipation  in  the 
United  States,  slaves,  who  by  the  Federal  Constitution 
were  recognised  as  persons,  were  in  several  of  the  States 
declared  by  law  to  be  real  estate ;  *  and  in  one  State  of  the 
Union,  Wisconsin,  the  one  species  of  property  which  is  espe- 
cially typical  of  mobility,  and  is  of  no  value  apart  from  its 
capability  of  motion,  namely,  the  rolling  stock  of  railroads, 

tinned,  Avithout  miich  inquiry  or  opposition,  and  owners  of  per- 
sonalty have  remained  exempt  from  taxation,  although  personal 
property  has  gone  on  increasing  until  its  value  has  become  much 
greater  than  all  the  real  property  of  the  kingdom. 

*  In  American  colonial  days  slaves  were  regarded  as  belonging 
to  the  land,  and  figured  in  tax  valuations  as  real  property. 
25 


378    THE  THEORY  AND   PRACTICE   OF  TAXATION. 

has  been  by  law  made  real  estate.  Shares  in  the  national 
debt  of  France,  as  well  as  stock  in  the  Bank  of  France — in- 
strumentalities which  in  the  United  States  would  be  re- 
garded as  personal  property  in  its  most  typical  form — may 
by  French  law  be  made  real  estate,  and  as  such  be  admin- 
istered on. 

Some  years  ago  the  following  curious  experience  oc- 
curred in  one  of  the  Xew  England  States :  A  person  rented 
a  farm,  and  on  the  expiration  of  his  lease  attempted  to 
remove  from  the  estate  the  manure  which  had  accumulated 
during  his  holding,  assuming  that  he  had  the  right  to  it 
as  personal  property.  The  owner  of  the  farm,  on  the  other 
hand,  forbade  the  removal  of  the  manure,  on  the  ground 
that  it  was  real  estate,  and  so  a  part  of  the  farm.  The  case 
found  its  way  into  the  courts,  and  on  its  trial  the  lessee 
and  defendant,  who  appeared  for  himself,  attempted  to  sub- 
stantiate the  legality  of  his  proceedings  in  the  following 
manner:  Addressing  the  judge  after  the  facts  in  the  case 
had  been  established,  he  asked,  "  Was  the  hay  in  the  barn 
personal  property  ?  "  Judge :  "  Certainly."  Lessee :  "  Were 
the  horses  and  cattle  personal  property?  "  Judge:  "  With- 
out dispute."  Lessee :  "  Then  will  your  Honour  please  to 
tell  me  how  personal  property  can  eat  personal  property  and 
produce  (dung)  real  estate?"  The  decision  was  never- 
theless in  favour  of  the  owner  of  the  farm,  or  the  plaintiff. 
Subsequently  the  courts  of  Xew  York  decided  that  manure 
accumulated  in  connection  with  a  livery  stable,  not  being 
an  agricultural  product  pertaining  to  a  farm,  was  not  real 
estate  but  personal  property. 

In  a  case  in  the  State  of  Tennessee,  where  a  person  who 
had  entered  a  neighbour's  field  and  removed  corn  on  the 
stalk  was  prosecuted  for  larceny,  the  court  held  that  the 
offence  was  not  larceny,  which  is  the  unlawful  taking  and 
carrying  away  of  personal  property,  but  trespass,  inasmuch 
as  the  corn  not  severed  from  the  ground  was  real  estate, 
but  would  have  been  larceny  if  the  corn  had  been  gathered 
or  disconnected  from  the  ground  previous  to  its  taking. 
Thereupon  a  bill  was  introduced  into  the  Legislature  of 
Tennessee  to  make  it  a  felony  to  steal  corn  from  a  field 
under  any  circumstances. 

From  these  illustrations  it  seems  obvious  that  the  dis- 
tinction between  real  and  personal  property  and  real  and 


DEFINITIONS  OF  TAXES.  379 

personal  taxes  is,  to  a  very  great  extent,  an  artificial  and 
not  a  natural  distinction. 

The  following  are  some  of  the  other  terms  used  to  desig- 
nate particular  forms  of  taxation,  the  meaning  and  tech- 
nical application  of  which  may  not  be  readily  apparent: 

A  franchise  tax  is  a  tax  on  a  franchise,  or  on  a  right 
granted  by  a  State  to  a  corporation  or  association  to  exer- 
cise certain  privileges.  In  fact,  a  franchise  is  a  privilege, 
and  in  most  cases  it  is  an  exclusive  privilege,  and  has  an 
actual  value  largely  disproportionate  to  the  amount  of 
capital  invested  by  the  company  or  corporation  upon  which 
it  has  been  conferred.*  It  has  been  held  by  the  courts  that 
a  franchise  tax  is  not  a  tax  on  capital  or  on  real  estate, 
but  on  privilege,  and  does  not  exclude  additional  taxation 
on  any  property  covered  by  the  franchise. 

The  terms  imposts  and  "customs''  (Latin  "  consue- 
tudines  " )  are  generally  understood  to  mean  indirect  taxes 
on  the  importation  of  commodities,  while  the  term  duty 
is  more  properly  applied  to  a  tax  upon  exports. 

The  origin  of  all  these  terms  is  obscure  and  involves 
some  interesting  features  in  English  history.  It  appears 
certain  that  they  were  in  the  first  instance  applied  to  ex- 
actions on  trade  generally,  and  not,  as  was  finally  the  case, 
on  imports  and  exports  exclusively,  and  were  in  use  before 
indirect  taxes  on  personal  property  were  recognised  in  Eng- 
land.   At  the  outset  and  for  a  long  period  they  were  also  not 

*  The  following  is  a  case  in  point,  derived  from  actual  experi- 
ence: A  street  railway  company  in  a  city  of  the  United  States 
reported  the  gross  earnings  of  the  corporation  for  1891  at  $1,188,000. 
Its  net  earnings  were  $400,000,  or  nearly  six  per  cent  on  a  capi- 
talization of  $7,000,000.  Its  city  property  tax  was  only  $11,000, 
or  $2.10  on  $500,000.  It  is  evident,  therefore,  that  the  value  of 
the  capital  of  this  corporation  was  due  largely  to  the  value  of 
its  franchise. 

The  value  of  a  franchise  is  an  eminently  proper  subject  for 
taxation,  though  it  is  not  commonly  so  regarded.  The  Supreme 
Court  of  Pennsylvania,  in  a  recent  case  (1894),  has  held  that 
under  the  laws  of  that  State  it  was  proper  and  lawful  in  ascertain- 
ing the  actual  value  of  the  capital  stock  of  a  corporation  (Sus- 
quehanna and  Schuylkill  Railroad  Company)  to  take  into  con- 
sideration, as  affecting  that  value,  the  franchises  of  the  company. 
Franchises  conferred  by  Congress  upon  a  corporation  created  by 
it,  to  be  exercised  within  a  State,  can  not  be  subject  to  taxation 
by  the  State  without  the  consent  of  Congress. — California  vs.  Cen- 
tral Pacific  Railroad  Company. 


380    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

regarded  in  the  light  of  taxes,  but  rather  as  dues  personal 
to  the  sovereign,  which  he  had  the  right  to  regulate  and 
collect  independent  of  any  statute,  and  which  carried  with 
it  the  further  right  to  restrain  at  pleasure  the  import  or 
export  of  any  commodity.*  Thus,  until  the  reign  of  Ed- 
ward II  (1272-1307)  the  right  to  tax  the  export  of  wool 
was  exclusively  a  royal  privilege ;  and  the  enactment  of 
a  statute  by  Parliament  in  1275,  limiting  the  amount  that 
the  king  could  take  in  respect  to  the  export  of  wool,  skins, 
and  leather — but  not  denying  the  privilege — is  regarded 
as  the  first  legal  foundation  in  England  of  the  customs 
revenue.  The  controversy  between  the  king  and  Parlia- 
ment over  customs  duties  went  on,  however,  with  varying 
phases  until  finally  settled  in  1682 ;  and  from  these  circum- 
stances, and  also  from  the  fact  that  customs  and  duties  are 
unseen  by  those  who  finally  bear  their  burden  because 
they  are  embodied  in  the  prices  of  commodities,  has  pos- 
sibly come  about  the  curious  idea  that  tariffs,  or  taxes  on 
imports,  are  not  taxes  on  any  one  or  are  any  burden  on 
property,  but  rather  some  sort  of  a  business  contrivance  for 
the  raising  of  revenue,  and,  if  they  are  taxes  at  all,  then 
that  the  foreigner  pays  them. 

The  term  impost  is  a  general  expression  for  any  tax, 
duty,  or  tribute,  but  is  seldom  now  applied  to  any  but  in- 
direct taxes  on  imports. 

The  term  excise,  though  used  in  the  Constitution  of  the 
United  States,  is  now  almost  entirely  restricted  in  use  to 
the  tax  system  of  Great  Britain ;  and  even  there  has  ac- 
quired a  far  different  meaning  and  application  from  what 
it  possessed  originally.    Thus  the  term  was  first  applied  in 

*  It  is  a  curious  fact  that  the  old  idea  that  imposts  and  cus- 
toms, or  the  right  to  impose  exactions  on  trade,  were,  when  first 
imposed,  not  regarded  in  the  light  of  taxes  but  as  dues  personal 
to  the  sovereign,  which  he  had  the  right  to  regulate  and  collect 
independent  of  any  statute,  has  recently  found  reassertion  and 
Indorsement  in  the  United  States  Senate  by  a  leading  member 
of  that  body  from  New  England,  that  he  did  not  regard  the  levy- 
ing of  imposts  or  customs  dues  on  imported  commodities  as  in 
the  nature  of  taxes;  for,  if  such  levies  on  trade  are  not  taxes, 
they  are  simply  exactions  of  a  despotic  form  of  government,  repre- 
sented immaterially  either  by  one  man  or  a  collection  of  men, 
and  for  whom  or  for  which  no  rightful  claim  of  representing  or 
being  a  government  by  the  people  or  for  the  people  can  be  pre- 
ferred. 


EXCISE  DUTIES.  381 

England  to  taxes  on  manufactured  commodities  produced 
and  consumed  in  the  kingdom,  as  beer,  cider,  soap,  glass, 
paper,  and  the  like,  and  in  contradistinction  to  duties  or 
customs  on  commodities  of  foreign  manufacture  and  im- 
portation; and  this  distinction  is  still  officially  recognised 
in  the  fact  that  special  care  has  always  been  taken  in  all 
British  legislation  on  this  subject  to  make  the  excise  tax 
as  nearly  equal  as  possible  to  the  customs  imposed  on  the 
same  kind  of  imported  commodities.  The  term  is  sup- 
posed to  find  its  origin  also  in  the  circumstance  that  it 
was  originally  the  practice  to  cut  off,  or  "  excise,"  portions 
of  the  goods  assessed,  and  take  them  away  in  payment  of 
the  tax  in  kind.  The  first  attempt  to  impose  an  excise  tax 
in  England  was  in  1525,  and  failed,  as  both  Houses  of 
Parliament  concurred  in  opinion  that  it  was  unconstitu- 
tional. After  the  Eestoration,  or  under  Charles  II,  the 
attempt  was  successfully  renewed,  and  the  taxes  under  it 
were  very  curiously  divided  into  two  classes,  and  the  re- 
ceipts from  the  same  made  personal  to  the  crown — namely, 
the  hereditary  excise,  so  called  because  granted  to  the 
crown  forever  in  consideration  or  recompense  for  the  aban- 
donment by  the  crown  of  certain  perquisites  and  privileges ; 
and  the  tempoi-ary  excise,  the  receipts  of  which  were  only 
granted  to  the  sovereign  for  life.  The  tax  was,  however, 
always  unpopular  in  England,  being  regarded  as  contrary 
to  the  spirit  and  principles  of  a  just  government,  and 
on  the  accession  of  William  and  Mary  it  was  greatly  modi- 
fied and  reduced;  and  it  is  somewhat  curious  that  a  term 
having  such  an  origin  and  history  should  have  found  a 
place  in  the  Federal  Constitution  and  be  thus  recognised 
as  a  legitimate  form  of  taxation  under  a  free  government. 
In  Great  Britain  at  the  present  time  the  only  commodities 
on  which  taxes  designated  as  excise  are  assessed  are  spirits, 
malt,  fermented  liquors,  and  chicory,  or  other  substitutes 
for  coffee.  But  in  addition  the  British  system  classifies 
under  the  head  of  excise  its  taxes  on  railways  and  a  few 
other  minor  subjects. 

The  late  United  States  Justice  Miller  defined  an  excise 
tax  as  "  one  which  is  assessed  upon  some  article  of  prop- 
erty or  money  or  something  which  is  exhausted  in  the  use. 
It  is  one  which  from  its  essence  and  nature  must  be  paid 
in  fact  by  the  buyer,  or  the  last  man  who  buys  or  uses  the 


382    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

property,  because,  whoever  has  it  at  the  time  when  the  tax 
is  levied  upon  it  adds  that  amount  to  the  selling  price  when 
he  comes  to  dispose  of  it  until  the  property  is  consumed. 
It  is  a  tax  upon  consumption."  * 

In  the  United  States  all  Federal  taxes  that  are  not 
levied  under  the  tariff  and  navigation  laws  are  classified 
under  the  general  designation  of  "  internal  revenue  taxes." 

The  term  toll,  formerly  in  extensive  use,  and  signifying 
duties  on  imports  and  exports,  is  now  nearly  obsolete,  and 
restricted  almost  exclusively  in  meaning  to  the  charges  for 
permission  to  pass  over  bridges,  ferries,  and  roads  (turn- 
pikes) owned  by  the  parties  imposing  them.  The  courts 
have  held  that  railroad  fares  can  not  be  regarded  as  tolls. 

A  word  in  very  common  use  in  English  history,  espe- 
cially when  reference  is  made  to  fiscal  topics,  is  that  of 
subsidy;  but  its  former  and  present  signification  are  very 
different.  Under  the  earlier  English  kings,  when  the  in- 
adequacy of  the  hereditary  or  peculiar  revenues  of  the 
crown  to  defray  its  expenditures  compelled  the  monarch 
to  ask  pecuniary  aid  of  his  subjects,  the  grants  that  were 
made  were  known  as  "  tenths,"  "  fifteenths,"  or  the  like, 
according  as  the  exaction  of  such  percentages  of  certain 
properties  were  authorized,  and  also  as  "  subsidies "  and 
"  benevolences."  The  peculiarity  of  all  such  grants  was 
that  they  were  always  special  and  extraordinary,  and  had 
no  place  in  any  regular  system  of  taxation.  Thus,  of  the 
reign  of  Henry  VIII  it  is  recorded  that  Parliament  granted 
subsidies  occasionally,  but  the  king,  having  found  a  readier 
way  of  obtaining  money,  did  not  need  them — the  readier 
way  having  been  the  confiscation  of  all  the  property  of  the 
religious  houses,  which  included  more  than  half  of  all  the 
land  of  the  kingdom ;  and  of  Elizabeth,  that  during  the 
forty-five  years  of  her  reign  Parliament  granted  twenty 
subsidies  and  thirty-nine  fifteenths,  the  balance  of  needed 
supplies  being  obtained  from  crown  lands — as  the  duchy 
of  Lancaster — and  other  hereditary  revenues.     Under  the 

*  Lectures  on  the  Constitution  of  the  United  States,  p.  238. 
"  What  is  the  natural  and  common  or  technical  or  appropriate 
meaning  of  the  Avords  duty  and  excise  it  is  not  easy  to  ascertain. 
They  present  no  clear  and  precise  ideas  to  the  mind.  Different 
persons  will  annex  different  significations  to  the  terms." — Pater- 
son,  J.,  EijUon  vs.  V.  8.,  3  Dallas,  111,  176. 


SUBSIDIES. 


383 


Commonwealth  regular  taxes  on  lands  and  other  forms  of 
property  were  for  the  first  time  instituted  in  England,  and 
these  proved  so  productive  that  the  old  methods  of  per- 
centages, subsidies,  and  benevolences  were  discontinued,  and 
with  their  nomenclature  disappeared  from  English  fiscal 
history. 

At  the  present  time  the  term  subsidy,  in  place  of  desig- 
nating as  formerly  a  grant  obtained  by  the  Government 
from  private  interests,  has  come  to  mean  a  grant  obtained 
from  the  Government  in  aid  of  private  enterprises  which  it 
is  claimed  should  be  encouraged  by  the  state  in  the  interest 
of  the  general  public,  as,  for  example,  the  fostering  of 
shipbuilding  and  ship-using,  and  the  cultivation  and  manu- 
facture of  certain  commodities.  But  this  modern  use  of 
the  word  "  subsidy  "  can  not,  it  is  said,  be  referred  back 
to  any  earlier  period  than  the  year  1840. 

Of  the  many  other  terms  and  words  used  in  connection 
with  the  subject  of  taxation,  there  are  very  few  that  seem 
to  require  special  explanation,  and  the  majority  of  these, 
although  formerly  in  extensive  use,  have  now  become  obso- 
lete and  passed  into  history — as,  for  example,  gahelle,  the 
term  given  in  France  to  the  tax  on  salt ;  corvee,  a  compul- 
sory contribution  of  labour;  and  taille,  or  taillage,  a  tax 
on  the  supposed  profits  of  agriculturists,  and  the  like.  The 
characteristic  of  almost  all  modern  tax  words  or  terms  is 
indefiniteness ;  and  probably  in  no  other  department  of 
knowledge  is  there  such  a  lack  of  exactness  in  respect  to 
definitions.  This  to  a  student  may  seem  at  first  to  be  a 
factor  of  no  little  embarrassment,  and  as  assimilating  him 
to  the  condition  of  the  man  who  couldn't  see  the  forest 
because  of  the  multitude  of  trees;  but  with  the  exception 
of  the  definitions  of  iax  and  taxation,  this  condition  of 
affairs  really  constitutes  no  obstacle  in  the  way  of  clearly 
reasoning  and  determining  as  to  what  should  be  the  funda- 
mental principles  of  taxation. 


yj, 


CHAPTER  XYII. 

THE   EXISTING    METHODS    OF    TAXATION. 
PART    I. 

Subjects  of  Taxation. — The  subjects  of  taxation,  to 
use  a  happy  generalization  of  Justice  Field,  of  the  United 
States  Supreme  Court  (Foreign-held  Bond  Case,  15  Wal- 
lace), "are  persons,  property,  and  business.  Whatever 
form  taxation  may  assume,  whether  as  duties,  imposts,  ex- 
cises, licenses,  or  direct,  it  must  relate  to  one  of  these  sub- 
jects, li  is  not  possible  to  conceive  of  any  other,  though 
as  applied  to  them  taxation  may  be  exercised  in  a  great 
variety  of  ways." 

With  this  postulate  we  are  legitimately  led  up  to  the 
consideration  of  the  ways  or  methods  by  which  the  State 
or  Government,  in  virtue  of  its  sovereignty,  and  on  the 
ground  of  necessity,  and  solely  for  its  support,  taxes  or 
compels  contributions  from  the  three  above-enumerated 
subjects,  for  the  purpose  of  defraying  its  expenditures. 

Apportionment  of  Taxation. — This  department  of 
the  subject  of  taxation,  while  the  most  practical  and  there- 
fore the  most  interesting,  is  at  the  same  time  the  one  most 
obscure,  and  the  one  about  which  there  is  the  most  striking 
difference  of  opinion  among  writers  on  economic  and  fiscal 
subjects.  The  four  maxims  or  canons  laid  down  by  Adam 
Smith  in  his  Wealth  of  Nations,  by  reason,  as  he  claims, 
of  their  eminent  justice  and  equality,  have  obtained  such 
world-wide  celebrity  that  they  are  almost  always  referred 
to  as  of  unquestionable  authority  in  all  discussions  of  this 
subject,  and  have  been  thus  characterized  by  an  eminent 
French  student  and  writer  (M.  Menier)  on  taxation: 
"  When  a  legislator,"  he  says,  "  brinsfs  forward  a  new 
scheme  for  taxation,  he  is  always  careful  to  say  that  it  is 
not  in  contradiction  with  even  one  of  these  rules;  and  at 
384 


V 


RULES  OF  TAXATION.  385 

the  same  time  he  never  fails  to  invoke  them  as  authority 
during  a  debate,  even  when  he  is  actually  scheming  to 
transgress  them." 

These  rules  are  four  in  number,  and  are  as  follows:  /, 
1.  "  The  subjects  of  every  state  ought  to  contribute  to  the  ^/ 
support  of  the  Government,  as  nearly  as  possible,  in  pro- 
portion to  their  respective  abilities— that  is,  in  proportion 
to  the  revenue  which  they  respectively  enjoy  under  the  ^^^"^^ 
protection  of  the  state."  In  the  observation  or  neglect  of  -  ^ 
this  maxim  consists  what  is  called  the  "  equality  or  in- 
equality of  taxation."  2.  "  The  tax  which  each  individual 
is  bound  to  pay  ought  to  be  certain  and  not  arbitrary. 
The  time  of  payment,  the  manner  of  payment,  the  quantity 
to  be  paid,  ought  all  to  be  clear  and  plain  to  the  contributor 
and  to  every  other  person.  The  certainty  of  what  each  in- 
dividual ought  to  pay  is,  in  taxation,  of  so  great  impor- 
tance that  a  very  considerable  degree  of  inequality  (I 
believe,  from  the  experience  of  all  nations)  is  not  near 
so  great  an  evil  as  a  very  small  degree  of  uncertainty." 
3.  "  Every  tax  ought  to  be  levied  at  the  time  and  in  the 
manner  in  which  it  is  most  likely  to  be  convenient  for  the 
contributor  to  pay  it."  4.  "  Every  tax  ought  to  be  so  con- 
trived as  both  to  take  out  and  to  keep  out  of  the  pockets 
of  the  people  as  little  as  possible  over  and  above  what  it 
brings  into  the  public  treasury  of  the  state." 

But  although  almost  universally  accepted  as  the  em- 
bodiment of  the  highest  wisdom,  the  above  four  maxims 
or  canons  of  Adam  Smith  have  been  and  are,  nevertheless, 
open  to  some  criticism.  In  the  first  place,  they  are  so  gen- 
eral in  their  nature  and  so  lacking  in  any  precise  rule  or 
test  for  application,  that  they  stand  in  the  light  of  apho- 
risms ;  somewhat  as  the  maxims  "  Honesty  is  the  best 
policy,"  "  Never  put  off  till  to-morrow  what  can  be  done 
to-day,"  etc.,  to  which  all  respect  is  always  given,  except 
the  desirable  one  of  practical  use  in  actual  eases.  In  fact, 
the  originators  of  the  very  worst  forms  of  taxation  now 
existing  might  and  probably  would  plead  that  their  methods 
or  practices  were  based  on  the  ideas  of  Adam  Smith,  or 
were  as  near  in  conformity  to  them  as  was  possible  under 
the  existing  circumstances.  Again,  the  first  maxim  or 
canon  embodies  two  propositions  antagonistic  to  each  other, 
and  one  of  which  can  hardly  be  considered  correct ;  namely. 


386    THE  THEORY   AND   PRACTICE  OF  TAXATION. 

vf  ^\'  that  every  citizen  should  pay  taxes  for  the  support  of  the 
\^        Government  in  proportion  to  his  ability.    For  if,  as  almost 
<^  all  authorities  are  now  agreed,  taxes  are  the  compensation 

which  persons  or  property  pay  to  the  state  for  protection, 
then  it  of  necessity  follows  that  where  there  is  no  protec- 
tion, ability  is  no  just  guide  for  assessment.  "  Where 
there  is  no  protection,"  said  Judge  Story  (in  the  case  of 
United  States  vs.  Rice,  4  Wheaton,  276),  "there  can  be 
no  claim  to  allegiance  or  obedience."  And  that  Adam 
Smith  did  not  intend  to  have  his  first  proposition  fully 
accepted  would  seem  evident  from  the  circumstance  that  he 
added  to  it,  and  qualified  it  with  these  other  words,  "  that 
is,  in  proportion  to  the  revenue  which  they  [the  citizens] 
respectively  enjoy  under  the  protection  of  the  state."  Mon- 
tesquieu, who  wrote  at  an  earlier  date,  also  enunciated 
even  more  clearly  this  common-sense  and  equitable  prin- 
ciple, when  he  said  (see  Spirit  of  the  Laws)  that  "  the 
public  revenues  ought  not  to  he  measured  hy  the  people's 
abilities  to  give,  hut  hy  what  they  ought  to  give."  "  And 
what  they  ought  to  give,"  as  has  been  remarked  by  another 
f  writer,  "  can,  of  course,  be  only  measured  by  the  benefit 
they  are  to  derive." 

Discriminating  Taxation. — The  proposition  that 
"  the  subjects  of  every  state  ought  to  contribute  to  the  sup- 
port of  the  Government  in  proportion  to  their  respective 
abilities "  embodies  also  and  inferentially  favours  the 
policy  of  discriminating  taxation,  and  finds  popular  ex- 
pression and  justification  in  the  assertion  that  the  rich 
man  needs  more  protection  from  the  state  than  the  poor 
man,  has  more  interests  to  be  guarded,  and  it  is  there- 
fore right  that  he  should  pay  more  in  proportion  to  his 
fortune.  "  It  is  just,"  says  Sismondi,  the  Italian  econo- 
mist, "  that  all  should  support  the  Government  in  return 
for  the  protection  it  gives  to  their  persons  and  properties, 
in  proportion  to  the  advantages  society  guarantees  to  them, 
and  the  expenses  which  it  incurs  on  their  account."  But 
the  question  is  pertinent,  to  whom  or  to  what  class  of 
its  members  does  society  afford  the  most  protection  or 
render  the  most  service?  Is  there  any  standard  by  which 
such  proportionality  can  be  even  approximately  deter- 
mined? To  these  questions  Mr.  John  Stuart  Mill  has 
made  the  following  answer: 


h'X^h'ti^ 


M-*^,  iuji-d^^  Uo.  jU^(^  vwt^Z' 


DISCRIMINATING  TAXATION. 


887 


"  It  can  not  be  admitted,"  he  says,  "  that  to  be  pro- 
tected in  the  ownership  of  ten  times  as  much  property  is 
to  be  ten  times  as  much  protectedyi  Whether  the  labour 
and  expense  of  the  protection,  or  tne  feelings  of  the  pro- 
tected person,  or  any  other  definite  thing  be  made  the 
standard,  there  is  no  such  proportion  as  the  one  supposed, 
nor  any  other  definable  proportion.  If  we  wanted  to  esti- 
mate the  degrees  of  benefit  which  different  persons  derive 
from  the  protection  of  Government,  we  should  have  to  con- 
sider who  would  suffer  most  if  that  protection  were  with- 
drawn; to  which  question,  if  any  answer  could  be  made, 
it  must  be  that  those  would  suffer  most  who  were  weakest 
in  mind  or  body,  either  by  nature  or  by  position.  Indeed, 
such  persons  would  almost  infallibly  be  slaves.  If  there 
were  any  justice,  therefore,  in  the  theory  of  justice  under 
consideration,  those  who  are  the  least  capable  of  helping 
or  defending  themselves,  being  those  to  whom  the  protec- 
tion of  Government  is  the  most  indispensable,  ought  to  pay 
the  greatest  share  of  its  price;  the  reverse  of  the  trnp  id  pa 
of  distributive_ justice^  wliich  consists  not  in  imitating  but 
in  fe^ressmg^the  inegualities  an^l  wrongs,  of  Nature.  Gov- 
ernme~nt  inust  be  regarded  as  so  pre-eminently  a  concern 
of  all  that  to  determine  who  are  most  interested  in  it  is 
of  no  renl  importance.  If  a  person  or  class  of  persons 
receive  so  small  a  share  of  its  benefit  as  make  it  neces- 
sary to  raise  the  question,  there  is  something  else  than  taxa- 
tion which  is  amiss,  and  the  thing  to  be  done  is  to  remedy 
the  defect  instead  of  recognising  it  and  making  it  a  ground 
for  demanding  less  taxes." 

M.  Menier,  of  France,  widely  known  as  a  manufacturer 
of  chocolate,  but  who  has  shown  himself  to  be  an  economist 
of  repute  and  a  most  valuable  member  of  the  French 
Chamber  of  Deputies,  in  a  comprehensive  treatise  on  taxa- 
tion {Ulmpot  sur  le  Capital,  Paris,  1874;  English  trans- 
lation, London,  1880)  re-enforces  the  conclusions  of  Mr. 
Mill  respecting  the  popular  theory  of  discriminating  taxa- 
tion by  different  though  not  less  forcible  arguments  and 
illustrations,  taking  as  a  text  the  following  remark  of  M. 
Leon  Faucher,  another  distinguished  French  writer  on 
economic  subjects :  "  It  seems  just  that  he  who,  thanks  to 
his  talents,  to  his  property,  or  his  capital,  procures  for  him- 
self and  his  family  the  enjoyments  of  luxury  should  pay 


Ufi 


388    THE   THEORY  AND   PRACTICE   OF   TAXATION. 

to  the  state  a  tribute  proportionately  more  considerable 
than  he  who  has  only  the  produce  of  his  daily  labour  to 
nourish  and  bring  up  his  family."  "  To  those,"  says  M. 
Menier,  "  who  do  not  reflect,  nothing  seems  more  simple 
than  this  proposition.  A  minimum  of  wants  is  spared 
taxation.  In  proportion  as  income  increases  the  tax  in- 
creases.   Let  us  see  the  consequences. 

"  A  principle  is  or  is  not.  A  principle  recognised  as  true 
ought  never  to  be  given  up,  whatever  may  be  its  apparent 
dangers.  Once  admitted,  it  must  be  submitted  to,  followed 
out  to  the  end,  and  its  consequences  accepted.  If  by  fol- 
lowing out  its  consequences  we  perceive  that  we  are  get- 
ting at  the  absurd,  we  must  return  to  the  principle,  and 
subject  it  again  to  the  touch  of  observation.  There  are 
many  who  content  themselves  with  stopping  halfway,  not 
daring  to  advance,  and  afraid  to  turn  back  to  discuss  the 
principle  on  which  they  have  long  relied.  They  are  the 
inventors  of  compromises,  who  adjourn  questions  instead 
of  solving  them. 

"  But  taxation,  it  is  claimed,  may  be  '  wisely  progres- 
sive.' I  know  no  more  concerning  a  '  wise  progression ' 
than  I  do  about  a  '  wise  addition '  or  a  '  wise  multiplica- 
tion.' A  progression  is  or  it  is  not.  If  it  is  insignificant, 
then  it  is  a  delusion.  The  inequality  it  aims  at  destroying 
subsists  intact.  If  a  true  progression  in  taxation  is  estab- 
lished, here  are  the  results  we  obtain :  We  will  suppose, 
for  example,  that  the  tax  ought  to  be  trebled  when  the 
income  is  doubled ;  then  a  tax  of  10  francs  on  100  francs  of 
income  would  rise  to  200  francs  on  3,000  francs,  to  600 
francs  on  4,000  francs,  to  1,800  francs  on  8.000  francs, 
to  5,400  francs  on  16,000  francs,  to  16,200  francs  on  32,000 
francs,  to  48,600  francs  on  64,000  francs,  and  to  145,000 
francs  on  128,000  francs.  I  conclude  that  the  principle 
that  ends  in  such  a  consequence  can  only  be  false.  What ! 
the  tax  would  one  day  exceed  my  fortune !  I  should  be 
the  debtor  of  the  fiscal  system  that  had  absorbed  more  than 
my  revenue.  Then  it  would  be  for  my  interest  not  to  aug- 
ment it !  I  shall  have  accumulated  only  for  the  treasury, 
and  the  more  I  acquire  the  more  rapidly  I  shall  be  de- 
spoiled. .  .  .  That  system  may  suit  Utopians  and  retro- 
grade people  who  completely  absorb  the  individual  in  the 
state,  but  it  will  not  suit  those  who,  relying  on  facts,  think 


MOOTER'S  RULES  OF   TAXATION.  389 

the  greatness  and  wealth  of  the  state  ought  to  proceed  from 
the  development  of  individuals.     It  may  suit  those  who 
seek  equality  at  the  basis,  but  not  those  who  seek  equality    ^(^ 
at  the  summit.     The  theory  of  progressive  taxation  is  a  P 
vestige  of  the  old  prejudice  that  regarded  M^ealth  as  an    '*'*^f'Ut£' 
evil,  as  a  sort  of  theft  from  the  rest  of  the  country,  and  ^^kTj 
that  it  would  be  equitable  to  make  the  rich  man  atone  or^^^^'''^^^ 
make  reparation  for  the  possession  of  his  fortune  and  his/^(V^^ 
pleasures.      In    warlike    civilizations,    where    wealth    wasA-^  ,^^, 
based  on  violence,  it  is  not  difficult  to  understand  the  legiti-  v.  7^"^> 
macy  of  this  prejudice;  but  it  finds  no  warrant  in  our     ^'V 
industrial  civilization,  where  all  wealth,  to  be  legitimate, 
must  be  based  on  the  appropriation  of  natural  agents  to 
our  wants.      But  the  partisans  of  a  wise  progression  in 
taxation  have  foimd  means  of  escaping  from  the  absurdity 
of  the  above  consequence — namely,  confiscation.    They  pro- 
pose that  above  a  certain  figure  the  progression  shall  stop. 
Under  such  a  system  they  would  favour  him  who  has  but 
little  money;  but  they  would  favour  still  more  him  whose 
wealth  exceeds  a  certain  limit.     If  you  have  £4,000  a  year, 
you  pay  the  maximum  of  the  progression ;  if  you  have  more 
than  £-1,000,  the  progression  vanishes.     A  principle  which 
ends  in  such  consequences  does  not  exist."  * 

M.  Menier's  Eules. — To  establish  a  system  of  taxa- 
tion which  will  be  equitable  and  effective  without  involving 
the  principle  of  progressive  or  discriminating  taxes,  M. 
Menier  regards  the  following  constructive  rules  as  funda- 
mental : 

1.  Taxation  should  never  be  laid  on  circulating  capital, 
"  since  every  tax  that  obstructs  circulation  impedes  produc- 
tion in  a  geometrical  ratio."  2.  Taxation  should  be  levied 
on  the  commodity ;  never  on  persons.  3.  Taxes  should 
never  impede  the  liberty  of  labour.  4.  Every  tax  ought  to 
be  levied  as  cheaply  as  possible.  5.  There  should  be  but 
one  sole  and  single  tax — namely,  on  fixed  capital,  f 

*  See  also  the  destructive  criticism  in  Say,  Les  solutions  demo- 
cratiques  de  la  question  des  impots.    Paris,  1886. 

t  M.  Menier  defines  fixed  capital  as  every  utility  of  which 
the  product  does  not  change  the  identity,  as  useful  machines,  in- 
struments of  trade,  profitable  buildings,  improvements  of  land, 
and  the  like.  Circulating  capital,  on  the  other  hand,  produces 
utility  only  by  being  transformed.     It  is  represented   by   three 


390    THE  THEORY  AND   PRACTICE  OF  TAXATION. 

The  True  Measuee  of  the  Burden  of  Taxation 
ON  Production. — In  addition  to  the  maxims,  or  canons, 
proposed  by  Adam  Smith,  another  one,  first  pointed  out 
by  Mr.  Edward  Atkinson,  of  Massachusetts,  is  worthy  of 
being  added,  and  may  even  be  regarded  in  the  light  of  a 
fundamental  principle ;  and  that  is,  that  the  burden  or  in- 
jurious effect  of  a  tax  on  production  or  exchange  is  not  to 
he  measured  by  the  ratio  which  the  tax  may  bear  to  the 
gross  value  of  the  subject  of  taxation,  but  rather  by  the 
proportion  which  the  tax  bears  to  the  profit  which  might 
normally  or  naturally  result  from  undertal-ing  a  certain 
line  of  industry  or  product.  To  practically  illustrate  this, 
let  us  take  an  example.  Let  us  suppose  two  men,  A  and 
B,  to  start  shops  for  the  manufacture  of  machinery,  each 
with  a  capital  of  $30,000,  and  that  each  in  his  operations 
expends  $20,000  for  coal  and  iron,  $40,000  in  wages,  and 
$4,000  for  transportation  of  the  raw  materials  to  the  shops 
for  manufacture.  The  total  cost  of  the  annual  product  of 
each  shop  will  then  be  $64,000,  or  a  little  more  than  three 
times  the  capital ;  and  a  sale  of  their  respective  products,  at 
the  net  price  of  $66,000,  would  yield  the  owners  $3,000, 
or  ten  per  cent  profit.  Now,  suppose  further  that  under 
such  conditions  A  has  a  tax  imposed  on  him  of  three  and 
an  eighth  per  cent  upon  the  value  of  his  product ;  it  may 
be  a  customs  or  excise  tax,  or  an  increased  rate  of  rail- 
road freight.  This  amounts  to  $3,000  on  the  $64,000  of 
product — no  excessive  burden,  it  mav  be  said,  and  only 
requiring  A  to  sell  his  $66,000  for  $2,000  additional.  But 
suppose  A  can  not  get  this  $2,000  additional ;  and  he  cer- 
tainly can  not  if  the  other  man,  B,  is  exempt  from  this 
three-and-an-eighth-per-cent  tax,  or  contrives  to  evade  it, 
and  competes  with  A  in  the  open  market.  Then,  in  such 
a  case,  this  three-and-an-eighth-per-cent  tax  upon  product 
manifests  itself  as  ten  per  cent  upon  the  entire  investment 
and  absorbs  the  entire  profits  which  otherwise  might  have 

elements — materials,  goods,  money.  "  Facts  prove  that  the  sup- 
pression of  circulation  is  a  cause  of  ruin  for  the  land  as  for  every 
other  source  of  production.  Look  at  Spain  since  the  expulsion 
of  the  Moors,  who  had  carried  to  so  great  a  height  the  theory  and 
practice  of  agriculture.  The  land,  having  become  the  property  of 
a  few  great  families  or  the  clergy,  was  consolidated.  Its  circula- 
tion ceased  completely,  and  production  ceased  with  it." 


TAXATION   ON  PRODUCTION.  391 

been  realized ;  so  that  the  business  of  A  first  drags,  then 
stagnates,  and  is  finally  abandoned;  while  his  workmen  are 
discharged,  the  village  where  the  shop  is  located  runs  down, 
the  artisans,  shopkeepers,  and  professional  men  connected 
with  it  complain  of  hard  times  and  emigrate  from  the 
locality  or  the  country,  while  the  railroad  fails  to  confer 
all  the  benefit  to  the  community  or  profit  to  its  stockholders 
that  might  be  possible.  B,  on  the  other  hand,  exempt  from 
the  tax,  keeps  on  working,  and  when  hard  times  come  con- 
tinues his  sales  and  the  occupations  of  his  workmen  by 
taking  -five  per  cent  profits  instead  of  ten,  and  selling  his 
goods,  as  he  can  afford  to,  at  reduced  prices  to  meet  tem- 
porary conditions.  Actual  practical  illustrations  of  the 
injustice  and  disaster  consequent  on  such  discrimination 
in  respect  to  tax  burdens  and  exemptions  are  afforded 
on  a  small  scale  in  the  history  of  much  railroad  manage- 
ment, and  to  a  larger  extent  where  two  nations  with  dif- 
ferent systems  of  taxation  undertake  to  compete  with  each 
other  in  the  sale  of  the  products  of  their  labour  in  the 
common  markets  of  the  world.  We  find  here  an  explana- 
tion also  of  the  immediate  beneficial  effects  which  attended 
the  first  tentative  measures  of  reform  in  the  British  tariff 
instituted  by  Sir  Eobert  Peel  in  1842  and  1845,  which, 
although  consisting  mainly  in  the  removal  of  numerous 
small  but  obstructive  duties,  nevertheless  started  British 
industry  forward  by  leaps  and  bounds,  even  before  the 
larger  burdens  of  tariff  restrictions  were  removed  in  later 
years. 

As  the  characterizations  of  "  poll/'  "  head,"  or  "  capita- 
tion "  taxes,  the  only  possible  form  of  direct  taxation  on  a 
person,  and  of  the  advantages  and  disadvantages  of  indirect 
taxes,  through  the  agency  of  which  the  Federal  Govern- 
ment collects  the  largest  proportion  of  its  revenues,  have 
been  already  pointed  out,  the  field  of  discussion  under 
this  head  is  practically  limited  to  the  existing  methods  of 
State  or  local  taxation  on  property  and  business,  in  contra- 
distinction to  national  or  Federal  taxation,  or  to  the  sys- 
tem under  which  nearly  six  tenths  of  all  the  contributions 
which  the  people  of  the  United  States  make  for  the  sup- 
port of  their  governments  are  assessed  and  collected. 

In  Great  Britain  about  two  thirds  of  the  revenue  of 
the  kingdom  is  from  "  local "  in  contradistinction  to  "  na- 


392    THE  THEORY  AND   PRACTICE   OF  TAXATION. 

tional  ■'  taxation— £53,000,000  in  1890.  Of  this  amount 
some  £32,000,000,  or  about  three  fifths,  is  raised  by  rates 
on  the  annual  value  of  land  and  house  property  in  various 
localities.  The  next  largest  source  of  local  revenue  is  from 
tolls,  dues,  etc.,  from  docks,  piers,  harbours,  ferries,  and 
markets,  and  yields  over  £7,000,000,  or  thirteen  per  cent 
of  the  total.  The  total  expenditures  for  local  purposes  in 
1890  were  returned  at  £67,000,000;  the  difference  between 
local  expenditures  and  receipts  being  made  up  by  contribu- 
tions or  grants  from  the  inland  revenue  department  of  the 
kingdom  and  by  municipal  loans.  The  aggregate  local  debt 
of  the  kingdom  is  about  one  third  of  the  national  debt,  and 
has  been  mainly  incurred  for  municipal  and  urban  im- 
provements, such  as  water  and  gas  supply,  markets,  tram- 
ways, parks,  libraries,  public  baths,  wash  houses,  drainage, 
and  other  improvements.  The  purposes  for  which  the 
proceeds  of  local  taxes  are  expended  in  the  United  King- 
dom are  mainly  for  poor  relief,  gas  and  water  supply, 
schools,  police,  asylums,  etc.  In  a  report  made  to  the  Brit- 
ish Association  for  the  Advancement  of  Science  in  1870  by 
Mr.  Stanley  Jevons,  it  was  stated  that  the  methods  by 
which  the  local  taxes  of  the  kingdom  were  then  levied  were 
substantially  according  to  an  act  passed  in  the  reign  of 
Elizabeth.* 

Popular  Theory  of  Taxation  in  the  United 
States  stated  and  examined. — The  general  idea  which 
constitutes  the  basis  of  the  system  of  State  or  local  taxa- 
tion mainly  recognised  in  the  United  States  (though  not 
in  other  countries),  and  generally  known  and  designated 
as  "  the  general  property  tax,"  is  founded  on  the  assump- 
tion that,  in  order  to  tax  equitably,  it  is  necessary  to  tax 
everything;  the  term  everything  being  at  the  same  time 
used  in  a  sense  so  indefinite  as  to  embrace  not  merely 
things  in  the  nature  of  physical  actualities  other  than 
persons,  but  also  persons,  incomes,  rights,  representatives 
of  property,  titles,  trusts,  conclusions  of  law,  debts,  and  in 
short  any  act  of  assessing  capable  of  resulting  in  the  obtain- 
ing of  revenue.    As  a  logical  consequence  of  this  idea,  the 

*  This  history  of  the  law  aflFecting  valuation  is  told  in  the  first 
report  of  the  commission  appointed  to  inquire  into  the  subject 
of  local  taxation,  presented  to  Parliament  in  December,  1898. 


GENERAL  PROPERTY  TAX.  393 

exemption  of  anj'thing  from  taxation  is  furthermore  held 
to  be  not  only  impolitic  bnt  unjust,  and  if  made  necessary 
by  circumstances,  as  something  to  be  regretted. 

The  general  property  tax  for  general  State  purposes 
exists  in  all  but  four  of  the  States  of  the  Federal  Union 
— Delaware,  New  Jersey,  Pennsylvania,  and  Wisconsin.  In 
Delaware  there  has  been  no  property  tax  since  1877,  as  its 
expenses  are  defrayed  mainly  by  licenses  and  taxes  on  rail- 
roads. In  New  Jersey  there  is  only  a  school  tax  on  prop- 
erty, but  no  property  tax  for  general  State  purposes.  In 
Pennsylvania  the  State  tax  is  levied  only  on  personal  prop- 
erty. In  Wisconsin  the  so-called  State  tax  is  levied  only 
to  defray  the  interest  on  the  debt,  and  for  the  purpose 
of  contributing  to  the  university  (one-eighth-mill  tax), 
schools  (one-mill  tax),  and  expenditures  on  account  of  the 
insane.  But  there  is  no  property  tax  for  general  purposes. 
In  addition  to  these  four  cases  a  property  tax  is  levied  in 
Vermont  only  in  case  the  corporation  taxes  do  not  suffice 
to  pay  the  entire  expenses  of  the  State. — Seligman,  Finan- 
cial Statistics  of  the  American  Commonwealths,  1889* 

*  The  statutes  of  Massachusetts  enacted  for  making  this  sys- 
tem of  taxation  effective,  and  which  have  been  substantially 
adopted  by  most  of  the  States  of  the  Federal  Union,  thus  specify 
the  objects,  persons,  and  property  that  shall  be  subject  to  taxa- 
tion: 

Section  1.  A  poll  tax  shall  be  assessed  on  every  male  inhabit- 
ant of  the  Commonwealth  above  the  age  of  twenty  years,  whether 
a  citizen  of  the  United  States  or  an  alien. 

Sec.  2.  All  property,  real  and  personal,  of  the  inhabitants  of 
this  State,  not  expressly  exempted  by  law,  shall  be  subject  to 
taxation. 

Sec.  3.  Real  estate,  for  the  purpose  of  taxation,  shall  include 
all  lands  within  this  State  and  all  buildings  and  other  things 
erected  on  or  affixed  to  the  same. 

Sec.  4.  Personal  estate  shall,  for  the  purposes  of  taxation,  in- 
clude goods,  chattels,  money,  and  effects,  wherever  they  are,  ships 
and  vessels  at  home  or  abroad,  money  at  interest,  and  other  debts 
due  the  persons  to  be  taxed  more  than  they  are  indebted  or  pay 
interest  for,  but  not  including  in  such  debts  due  any  loan  on 
mortgage  of  real  estate,  taxable  as  real  estate,  except  the  excess 
of  such  loan  above  the  assessed  value  of  the  mortgaged  real  estate, 
public  stocks  and  securities,  bonds  of  all  railways,  including  street 
railways,  stocks  in  turnpikes,  bridges,  and  moneyed  corporations, 
within  or  without  the  State,  the  income  from  an  annuity,  from 
ships  and  vessels  engaged  in  foreign  carrying  trade,  and  so  much 
of  the  income  from  a  profession,  trade,  or  employment  as  exceeds 
26 


394    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

Equally  popular  and  plausible  is  the  argument  by  which 
this  assumption,  and  the  administrative  system  based  upon 
it,  is  upheld  and  defended.  "  Is  not  all  property,"  it  is 
asked,  "  either  directly  or  through  its  owner,  protected  by 
the  state  or  sovereignty  ?  "  "  Do  not  all  persons  owe  allegi- 
ance to  the  state  ?  "  And  if  so,  "  why  should  not  all  per- 
sons and  property  contribute  to  the  requirements  of  the 
state  for  revenue  in  proportion  to  their  ability  ?  " 

But,  popular  and  plausible  as  are  the  arguments  and 
assumptions  for  such  a  system  of  taxation,  which,  in  the 
^jvV(     Vcase  of  the  United  States,  has  been  made  operative  under 
'  V*^  \.\''   State,  municipal,  and  local  governments  over  the  persons, 
\^  property,  and  business  of  over  seventy  millions  of  people, 

and  fortified  by  a  vast  amount  of  adjudication,  it  will  re- 
quire but  little  investigation  and  analysis  to  satisfy  any  one 
who  can  divest  himself  from  the  influence  of  old  prejudices 
of  the  truth  of  the  following  propositions :  First,  that  the 
assumption  that  it  is  necessary  to  assess  everything  in  order 

the  sum  of  two  thousand  dollars  a  year;  but  no  income  shall  be 
taxed  which  is  derived  from  property  subject  to  taxation. 

The  statute  exempts  from  taxation  the  property  of  the  United 
States  and  of  the  State;  of  the  literary,  benevolent,  charitable, 
and  agricultural  institutions  or  societies  incorporated  within  the 
State;  all  property  of  the  common-school  districts;  the  household 
fiuniture  of  every  person  not  exceeding  one  thousand  dollars  in 
value,  and  wearing  apparel ;  farmers'  utensils,  not  exceeding  three 
hundred  dollars  in  value;  houses  of  religious  worship;  mules, 
horses,  and  neat  cattle  less  than  a  year  old ;  swine  and  sheep  less 
than  six  months  old;  and  "the  poHs  and  estates  of  persons  who 
by  reason  of  age,  infirmity,  and  poverty  are  unable  to  contribute 
fully  to  the  public  charges." 

"  Xo  ship  or  vessel,  unless  actually  engaged  in  foreign  trade,  or 
in  part  undergoing  repairs,  shall  be  deemed  to  be  engaged  in  such 
trade." 

The  statutes  of  the  State  of  New  York  to  the  same  effect  are 
more  concise,  but  equally  comprehensive.     They  provide: 

1.  "  All  lands  and  all  personal  estate  within  this  State,  whether 
owned  by  individuals  or  by  corporations,  shall  be  liable  to  taxa- 
tion, subject  to  the  exemption  hereafter  specified. 

2.  "  The  term  '  personal  estate  '  and  '  personal  property '  shall 
be  construed  to  include  all  household  furniture,  moneys,  goods, 
chattels,  debts  due  from  solvent  debtors,  whether  on  account, 
contract,  note,  bond,  or  mortgage,  public  stocks  and  stocks  in 
moneyed  corporations;  they  shall  also  be  construed  to  include 
such  portion  of  the  capital  of  incorporated  companies,  liable  to 
taxation  on  their  capital,  as  shall  not  be  invested  in  real  estate." 


DEFECTS  OP  THE  METHOD.  395 

to  tax  equitably  involves  an  impossibility,  and  therefore 
unavoidable  inefficiency,  injustice,  and  inequality  in  ad- 
ministration; second,  that,  as  popularly  used  in  respect  to 
matters  pertaining  to  taxation,  the  term  property  is  made 
to  apply  equally  to  entities  and  to  symbols  or  non-entities, 
which  is  in  itself  an  absurdity ;  and,  finally,  that  the  out- 
come of  all  this  is  a  system  which  powerfully  contributes 
to  arrest  and  hinder  natural  development,  to  corrupt  society, 
and  is  without  a  parallel  in  any  country  claiming  to  be 
civilized.  And,  in  illustration  of  this  latter  point,  it  may 
be  added  that,  notwithstanding  recent  discussions  and  pub- 
lications, this  whole  subject  is  yet  so  unfamiliar  to  the 
people  of  the  United  States  that  probably  nine  out  of  ten 
of  its  best-informed  and  collegiate  educated  citizens,  and 
even  members  of  the  bar,  take  it  for  granted  that  the  method 
of  assessing  and  collecting  taxes  for  local  and  municipal 
purposes  is  substantially  the  same  all  the  world  over;  and 
would  be  greatly  surprised  to  find  on  investigation  that  the 
American  system  is  one  of  the  things  that  is  exclusively 
American  and  so  little  esteemed  by  the  people  of  other 
countries  as  to  be  for  such  reasons  strictly  "  non-export- 
able." 

Taxation  of  Real  Estate. — Attention  is  first  asked 
to  the  defects  of  this  system  in  respect  to  the  taxation  of 
real  property.  Here  everything,  as  the  term  implies,  is 
real,  tangible,  visible;  something  which  can  not  be  con- 
cealed ;  something  which  can  not,  under  any  circumstances, 
be  removed  beyond  the  jurisdiction  of  the  State,  except  by 
transfer  to  the  Federal  Government;  something  concern- 
ing which  the  laws  and  decisions  of  the  courts  harmonize 
rather  than  conflict.  In  the  valuation  of  real  property, 
furthermore,  it  is  possible  to  apply  such  tests  and  verifica- 
tions as  will  restrict  the  errors  of  estimate  within  compara- 
tively narrow  limits.  It  would  also  seem  as  if  the  law  as  it 
exists  upon  the  statute  books  of  most  of  the  States  was 
sufficiently  clear  and  explicit  in  its  declaration  and  man- 
date. Thus  the  language  of  the  statute  of  the  State  of 
New  York  is  as  follows : 

"  All  lands  within  this  State,  whether  owned  by  indi- 
viduals or  corporations,  shall  be  liable  to  taxation.  The 
term  '  land '  shall  be  construed  to  include  the  land  itself, 
all  buildings,  structures,  substructures  erected  upon,  under, 


396    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

or  above,  or  affixed  to  the  same;  all  wharfs  and  piers;  all 
bridges;  all  telegraph  lines;  all  surface,  underground,  or 
elevated  railroads  and  the  iron  thereon;  all  mains,  pipes, 
and  tanks  laid  or  placed  in,  upon,  above,  or  under  any 
public  or  private  street  or  place;  all  trees  and  underwood 
growing  upon  land ;  and  all  mines,  minerals,  quarries,  and 
fossils  in  and  under  the  same." 

In  most  of  the  States  of  the  Federal  Union  the  tax 
laws  require  that  the  assessment  of  all  property  shall  be 
at  its  full  and  fair  cash  value ;  and  the  judicial  authorities 
of  the  United  States  have  furthermore  held  that  the  require- 
ment of  approximative  equality  inheres  in  the  very  nature 
of  the  power  to  tax,  irrespective  of  any  constitutional  or 
statute  provisions. 

In  the  State  of  New  York  each  assessor  on  the  comple- 
tion of  his  official  labours  subscribes  an  oath  of  which  the 
following  is  the  material  portion: 

"  We  do  severally  depose  and  ^wear  that  we  have  set 
down  in  the  foregoing  assessment  roll  all  the  real  estate 

in  ,  according  to  our  best  information,  .  .  .  and 

that  we  have  estimated  the  value  of  said  real  estate  at  the 
sums  which  a  majority  of  the  assessors  have  decided  to  be 
the  full  value  thereof."  And  the  law  further  provides 
that  "  every  assessor  who  shall  wilfully  swear  false  in  tak- 
ing and  subscribing  said  oath,  shall  be  guilty  of  and  liable 
to  the  penalties  of  wilful  and  corrupt  perjury." 

It  is  difficult  to  see  how  language,  other  than  this,  could 
be  made  more  clear  and  explicit ;  and  it  is  accordingly  evi- 
dent that  if  the  law  fails  in  its  execution,  as  it  certainly 
does,  the  fault  is  not  in  the  statute  but  in  its  adminis- 
tration. 

Let  us  now  see  what  are  the  acknowledged  facts  in  re- 
spect to  the  valuation  of  real  property  in  New  York  and 
other  States  where  the  observance  of  substantially  like  con- 
ditions are  imperative. 

In  some  instances  in  New  York  the  valuation  of  real 
estate  for  taxation  is  reported  as  low  as  twenty  per  cent  of 
its  real  value.  In  a  majority  of  cases  in  the  country  the 
rate  varies  from  twenty-five  to  thirty-five  per  cent,  and 
rises  in  the  cities  to  fifty  and  possiblv  sixtv  per  cent  of  the 
maximum.  In  one  case,  mentioned  in  the  report  of  the 
State  assessors  n  1879,  two  adjoining  counties  of  the  State 


ASSESSMENT  OP  REAL  ESTATE.  397 

made  a  difference  of  twenty  thousand  dollars  per  mile  in 
assessing  the  same  railroad.  In  short,  there  can  not  prob- 
ably be  foimd  a  single  instance  in  the  whole  State,  unless 
possibly  in  the  case  of  certain  unoccupied  lands,  the  prop- 
erty of  non-residents,  where  the  law  as  respects  the  valu- 
ation of  real  property  is  fully  complied  with,  and  where  the 
oaths  of  the  assessors  are  not  wholly  inconsistent  with  the 
exact  truth.  The  official  reports  of  other  States  abound 
with  like  reports  of  flagrant  inequalities  in  the  assessment 
of  real  property.  As  a  rule,  where  assessors  are  dependent 
for  their  tenure  of  office  on  political  favouritism,  there  is 
no  pretence,  notwithstanding  their  oath,  of  complying  with 
law.*  When,  as  is  often  the  case,  a  State  tax  is  appor- 
tioned to  the  several  counties  of  the  State,  and  by  the 
counties  to  their  respective  towns,  there  arises  a  double 
competition  between  assessors  of  counties  in  the  aggre- 
gate and  of  the  towns  for  making  the  lowest  possible  valu- 
ation of  property,  especially  real  estate. 

In  a  large  number  of  States  (twenty-one  in  1890)  an 
attempt  has  been  made  to  correct  the  undervaluation  of 
property  rightfully  subject  to  taxation  by  creating  boards 
of  equalization,  with  power  to  raise  or  lower  the  valuations 
of  county  officials,  with  a  hope  of  securing  substantial  uni- 
formity; but  this  measure  has  not  been  successful,  and  the 
most  intelligent  members  of  such  boards  have  recorded 
their  opinions  that  it  is  impossible  under  the  present  systemy 
to  effect  any  ju,st  distribution  of  the  incidence  of  taxation. 

*  "  The  strife  between  counties  to  reduce  assessments  has  not 
ceased,  and  in  all  probability  will  not,  as  lon^  as  assessors  are 
elected,  or  selfishness  be  a  passion  in  the  human  breast." — Report 
of  the  California  State  Board  for  the  Eqtialization  of  Taxes, 
1885-'86. 


I 


CHAPTEE  XVIII. 

THE   EXISTING    METHODS    OF   TAXATION. 
PART   II. 

Taxation  of  Personal  Property. — Great,  however, 
as  may  be  the  inequalities  in  the  valuation  and  assessment 
of  real  property,  those  which  obtain  in  respect  to  personal 
are  so  much  greater  as  to  almost  preclude  the  idea  of  com- 
parison. 

In  the  incipient  stages  of  society,  when  property  con- 
sisted almost  or  quite  exclusively  of  things  tangible  and 
visible — lands,  buildings,  slaves,  horses,  cattle,  ships,  house- 
hold effects,  and  implements — when  railroad  shares,  bonds 
and  mortgages,  certificates  of  deposit,  and  all  the  multi- 
farious forms  of  credits  and  evidences  of  debt,  by -which 
we  are  enabled  to-day  to  secure  interests  in  land  or  in 
visible,  tangible  personal  property  in  the  possession  of 
others,  were  absolutely  unknown,*  and  when  the  rate  of 
taxation  was  comparatively  small,  the  theory  under  con- 
sideration was  not  impracticable  in  its  application,  and, 
under  most  circumstances,  afforded  but  little  opportunity 
for  the  working  of  injustice  in  respect  to  arbitrary  dis- 
criminations in  assessing.  For  when  personal  property  was 
of  a  visible  and  tangible  character  there  was  no  opportunity 
to  conceal  its  ownership  and  to  avoid  the  tax.  Each  mem- 
ber of  the  community  furthermore  took  a  sufficient  interest 
in  his  neighbour's  affairs  to  see  that  justice  was  done  in 
this  regard.  This  kind  of  friendly  interest  found  expres- 
sion in  Ehode  Island  in  a  law  that  was  passed  in  1673,  by 
which  it  was  provided  that,  under  certain  circumstances, 
a  citizen  might  be  required  "  to  give  in  writing  what  pro- 

*  Of  the  evidences  of  wealth  owned  by  one  of  the  richest  fami- 
lies in  the  United  States,  almost  the  whole  did  not  have  an  exist- 
ence as  recently  as  the  year  1840. 
898 


EXTRATERRITORIAL  TAXATION.  399 

portion  of  estate  and  strength  in  particular,  he  guesseth  ten 
of  his  neighbours,  nameing  them  in  particular,  hath  in 
estate  and  strength  to  his  estate  and  strength."  It  is  only 
fair  to  add,  however,  that  this  law  was  intended  to  pre- 
vent tax-dodging,  and  only  required  a  man  to  guess  with 
respect  to  the  relative  size  of  his  neighbours'  estates  to 
his  own,  when  he  himself  was  suspected  of  having  under- 
valued his  own  estate.  Very  curiously  this  ancient  law  and 
practice  find  expression  to  this  day  in  Rhode  Island  in  the 
circumstance  that  no  citizen  of  that  State  is  qualified  to 
vote  upon  any  proposition  to  impose  a  tax,  or  for  authoriz- 
ing the  expenditure  of  public  money,  that  has  not  paid  a 
personal  property  tax  six  days  preceding  such  day  of  vot- 
ing. Lists  of  persons  who  are  or  may  be  qualified  to  vote 
generally  are  published  and  placarded  before  election,  with 
prefixes  to  each  name,  showing  the  electoral  qualification 
of  its  representative  on  the  list,  whether  the  same  is  depend- 
ent on  real  estate  or  personal  property  taxation.  Any  per- 
son who  shall  take  down  or  destroy  this  list  once  placarded 
is  liable  to  a  fine  of  three  hundred  dollars,  or  three  months' 
imprisonment. 

Then  again  very  little  of  a  citizen's  property  was  situ- 
ated without  the  territorial  Jurisdiction  of  the  taxing  power, 
or  indeed  without  the  territorial  limits  of  the  hamlet,  town, 
or  city  in  which  the  citizen  lived.  Then  a  man  could  not 
very  conveniently  live  in  one  place  and  do  business  in  an- 
other. Within  a  century  an  English  court  has  declared  a 
contract  invalid  which  stipulated  that  one  of  the  parties 
thereto  should  do  an  act  in  London  and  Oxford  the  same 
day,  because  the  stipulation  involved  in  this  particular  an 
impossibility.  Now  the  distance  involved  could  be  trav- 
ersed in  about  an  hour.  The  nature  of  property,  as  well 
as  the  means  for  moving  it,  was  also  such  as  to  render  all 
transportation  difficult,  and  rapid  transportation  impossi- 
ble. The  discrepancy  in  taxation  as  respects  different  places 
was  also  so  small  that  no  great  advantage  could  be  gained 
by  shifting  one's  residence  or  property  for  the  sake  of  evad- 
ing taxation;  and  the  difficulty  and  inconvenience  of  so 
doing  were  so  great  that  the  temptation  could  hardly  have 
existed.  But  even  in  the  most  simple  condition  of  society 
the  practical  application  of  what  may  be  properly  termed 
the  "  infinitesimal  "  system  of  taxation  must  have  been  al- 


400    THE   THEORY   AND   PRACTICE   OF  TAXATION. 

ways  attended  with  great  difficulties,  for  the  reason  that  it 
involved  and  necessitated  personal  inquisitions,  than  which 
there  is  nothing  in  gov^-nment  that  men  more  dislike  and 
resist;  and,  in  the  language  of  a  committee  of  the  French 
National  Assembly  of  1789  (of  which  Talleyrand  and  La- 
rochefoucauld  were  members),  the  recognition  and  prac- 
tice of  which,  by  any  government,  is  something  inconsistent 
with,  and  antagonistic  to,  the  maintenance  of  a  free  people. 

It  is  not  generally  known,  furthermore,  that  Alexander 
Hamilton,  as  a  member  of  the  conventions  which  framed 
the  Constitution  of  the  United  States  and  the  first  Consti- 
tution of  Xew  York,  gave  all  his  influence  in  favour  of  the 
restriction  of  all  internal  or  local  taxation  to  visible,  tan- 
gible objects,  and  to  the  assessment  of  these  specifically, 
and  by  some  uniform  and  simple  rule.  The  language  used 
by  him  in  one  of  his  papers  on  this  subject  is  as  follows : 
"  The  genius  of  liberty  reprobates  everything  arbitrary 
or  discretionary  in  taxation.  It  exacts  that  every  man,  by 
a  definite  and  general  rule,  should  know  what  proportion 
of  his  property  the  State  demands.  Whatever  liberty  we 
may  boast  in  theory,  it  can  not  exist  in  fact  while  (arbi- 
trary) assessments  continue."  * 

Again,  had  nothing  come  down  to  us  in  English  history 
from  the  time  of  Edward  III,  other  than  one  of  the  assess- 
ment rolls  of  that  period  (when  there  was  little  or  no  prop- 
erty capable  of  taxation  but  what  was  visible  and  tangible), 
the  evidence  would  be  complete  that  the  mass  of  the  Eng- 
lish people  were  but  little  better  than  slaves;  for  the  mere 
inspection  of  such  rolls  shows  that  their  preparation  in- 
volved such  an  inquisitorial  scrutiny  into  domestic  life, 
such  a  seeing,  handling,  enumeration,  and  minute  valua- 
tion of  everything  in  the  household,  from  the  utensils  of 
the  kitchen  to  the  furniture  of  the  bedchamber,  as  to  make 
personal  freedom,  or  a  sense  of  self-respect,  on  the  part 
of  the  taxpayer  who  submitted  to  such  a  scrutiny,  almost 
an  impossibility,  t 

*  The  Continentalist,  No.  VI,  in  Works  of  Alexander  Hamil- 
ton (Lodge's  edition),  vol.  i,  p.  270. 

t  A  copy  of  an  assessment  roll  of  the  time  of  Edward  III 
{1329-'67)  given  by  Lingard,  in  his  History  of  England,  contains 
a  list  of  articles,  down  to  a  towel  and  a  bench;  and  the  historian 
notes  that  in  the  returns  are  carefully  mentioned  the  very  rooms 


INTANGIBLE  PROPERTY.  401 

And  in  this  connection  it  is  instructive  to  again  refer  to 
the  famous  insurrection  of  English  yeomen  and  peasants 
under  "  Wat "  the  Tyler,  in  the  reign  of  Richard  II,  the 
successor  of  Edward  III,  which  originated  directly  in  the 
attempt  of  a  tax-gatherer  or  assessor  to  ascertain,  by  brutal 
personal  examination,  whether  a  daughter  of  "  Wat's  "  had 
attained  the  age  of  puberty,  and  in  consequence  had  so  be- 
come liable  to  enrolment  for  capitation  assessment. 

But  to  whatever  extent  simplicity  in  the  elements  of 
property  simplified  the  original  methods  and  ideas  in  re- 
spect to  local  taxation,  the  problem  involved  rapidly 
changed,  and  became  more  and  more  intricate  as  increas- 
ing population,  and  increasing  commerce,  and  intercom- 
munication, required  that  property  should,  to  a  great  extent, 
be  put  into  a  condition  to  admit  of  being  readily  mobilized, 
in  order  to  allow  of  its  most  profitable  use  and  application. 
Thus  a  large  part,  in  fact  the  larger  part,  of  what  is  to-day 
termed  "  personal  property "  in  every  civilized  state  is 
of  the  most  intangible  character,  and  in  great  part  invisible 
and  incorporeal :  such,  for  example,  as  negotiable  instru- 
ments in  the  form  of  bills  of  exchange,  state,  municipal, 
and  corporate  bonds,  and  the  multiplied  forms  of  evidence 
of  indebtedness,  certificates  of  stocks,  copyrights,  patents, 
legal-tender  notes,  etc.,  all  of  which,  if  entitled  to  the  name 
of  property,  is,  through  a  great  variety  of  circumstances, 
constantly  exposed  to  fluctuations  in  value,  frightful  in 
amount,  and  incalculable  in  their  suddenness,  and  under 
the  influence  of  which  wealth  vanishes  as  if  by  the  wave 
of  a  magician's  wand.  It  is  offset  or  measured  by  indebt- 
edness which  may  never  be  the  same  one  hour  with  another ; 
is  easy  of  transfer,  and,  as  essential  to  using,  is  in  fact  con- 
tinually transferred  from  one  locality  to  another,  and  from 
the  jurisdiction  of  one  state  to  the  jurisdiction  and  laws 
of  another  and  a  different  state;  is  here  to-day,  gone  to- 
morrow ;  is  burned,  sunk  at  sea,  lost  in  mines,  patents,  rail- 
ways, factories,  trading  associations,  and  in  a  thousand 
other  different  ways.  It  has  been  recently  said  that  five 
men  who  do  business  in  Boston  can  together  control  or  dis- 


in  which  the  articles  were  found,  and  that  there  were  no  exemp- 
tions except  one  suit  of  clothes  for  each  person,  which  were  sup- 
posed to  be  included  in  the  tax  levied  on  the  poll  or  person. 


402    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

pose  of  an  amount  of  property  which  equals  one  fifteenth 
of  the  entire  assessed  valuation  of  that  city;  and  that  they 
could,  if  they  pleased,  carry  round  the  evidence  of  the 
existence  of  that  property  in  their  coat  pockets,  or,  accord- 
ing to  popular  theory,  the  property  itself. 

For  the  purpose  of  ascertaining  the  amount  of  taxable 
personal  property  owned  by  individual  citizens  two  methods 
have  been  employed  in  the  United  States : 

1,  In  several  States,  such  as  Massachusetts,  Connecti- 
cut, and  Illinois,  the  taxpayer  is  required  to  give  each  year 
to  the  assessor  a  detailed  and  verified  statement,  carefully 
itemized,  of  all  the  personal  property  owned  by  him  or 
under  his  control  and  of  every  kind,  sort,  and  description. 
This  method  is  generally  known  as  "  the  listing  system." 
In  several  of  the  States  the  principle  that  a  State  can  only 
tax  that  which  is  within  its  territorial  jurisdiction  is 
ignored,  and  even  visible  tangible  property  situated  outside 
of  the  taxing  State  is  required  to  be  returned  for  the  pur- 
pose of  taxation. 

2.  The  other  and  more  general  method  of  ascertaining 
taxable  personal  estate  is  that  which  is  exemplified  in  the 
State  of  New  York,  by  which  the  assessor  guesses  at  the 
personal  property  of  the  victim,  and  places  him  upon  the 
list  at  such  a  figure  as  either  his  information  or  imagination 
sustains  him  in  considering  to  be  that  which  justly  repre- 
sents the  personal  estate  of  the  taxpayer.* 

In  view  of  the  fact  (made  certain  by  all  experience) 
that  very  few  returns  of  personal  property,  even  when  sup- 
ported by  oaths,  are  worthy  of  implicit  credence,  the  posi- 

* "  In  a  ease  involvinjj  the  assessment  of  personal  property, 
in  one  of  the  courts  of  this  State  a  few  years  ago,  an  assessor  in 
one  of  our  cities  testified  that  his  method  of  ascertaining  what 
personal  property  a  taxpayer  owned  was  to  examine  the  direc- 
tories, the  county  clerk's  office,  and  papers  relative  to  estates  of 
deceased  persons;  and  when  he  lacked  definite  information,  to 
guess  at  the  assessment  from  the  place  of  business  or  of  residence 
occupied  by  the  taxpayer.  If  the  tax  was  cheerfully  paid  for  two 
or  three  years,  the  personal  assessment  would  then  be  '  marked 
up.'  This  process  of  increasing  the  personal  assessment  went  on 
until,  as  the  witness  graphically  said,  the  taxpayer  '  squealed.' 
when  the  amount  was  finally  fixed  at  what  the  taxpayer  would 
bear  without  swearing  it  off." — Address  on  the  Taxntinn  of  Per- 
sonal Property,  hy  Jvlien  T.  Dnvies,  before  the  Manhattan  Single 
Tax  Club,  January,  1891,  Neio  York. 


ASSESSING  PERSONAL  PROPERTY.  403 

tioEL  of  the  assessor  who  honestly  desires  to  enforce  the 
law  is  one  of  great  difficulty  and  embarrassment.  For,  in 
the  absence  of  some  superhuman  power  which  will  permit 
that  to  be  seen  which  to  ordinary  vision  is  invisible,  and 
to  know  what,  through  the  exercise  of  ordinary  reason,  can 
not  be  known,  any  attempt  on  his  part  to  obtain  independ- 
ent cognizance  of  such  commercial  and  financial  instru- 
mentalities for  the  purpose  of  valuation  and  assessment  is, 
on  its  face,  an  impossibility;  and  if  the  co-operation  of  the 
person  to  be  assessed  is  to  be  invited  or  relied  on,  two  of 
the  most  powerful  influences  that  can  control  human 
action — love  of  gain,  or  the  unwillingness  to  part  with 
property,  and  the  desire  to  avoid  publicity  in  respect  to 
one's  private  affairs — immediately  unite  to  oppose  and  pre- 
vent such  co-operation. 

A  resort  to  personal  inquisition,  with  the  accompanying 
machinery  of  oaths,  "  dooming,"  and  penalties,  is  next  in 
order ;  under  which  the  State,  ignoring  all  rules  enacted  for 
the  protection  of  debtors  in  the  ordinary  collection  of  debts, 
pursues  the  citizen  for  the  collection  of  what  it  claims  to 
be  a  debt,  with  no  better  result,  in  nine  cases  out  of  ten, 
than  the  impairment  of  the  public  sense  of  both  justice 
and  morality. 

But  it  is  claimed  that  each  individual  owes  the  State 
annually  a  certain  sum  of  money  in  the  way  of  taxes,  pro- 
portioned to  his  entire  property.  If  he  voluntarily  pays, 
he  escapes  arbitrary  measures.  If  he  declines  to  pay,  or 
tries  to  avoid  payment,  he  has  no  just  cause  to  complain  if 
he  is  regarded  in  the  light  of  a  criminal,  or  if  the  same 
arbitrary  measures  are  used  to  collect  his  tax  as  if  it  were 
a  debt  owing  by  one  citizen  to  another.  Let  us  examine  this 
averment. 

If  the  defaulting  taxpayer  is  to  be  regarded  as  a  crimi- 
nal, and  as  such  placed  in  the  worst  possible  light,  he  cer- 
tainly ought  not  to  be  deprived  of  the  privileges  of  a  crimi- 
nal, which  are  a  right  to  a  public  investigation  according 
to  the  rules  of  evidence  adopted  by  free  and  enlightened 
communities,  a  right  to  be  heard  before  condemnation,  and 
the  right  to  be  presumed  innocent  of  having  property 
subject  to  taxation  until  the  fact  is  ascertained  otherwise 
by  legal  proof.  But  under  the  existing  tax  laws  of  most 
of  the  United  States  there  are  not  accorded  to  the  taxpayer 


404    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

the  privileges  of  a  criminal;  for  no  tax  can  be  assessed  on 
a  large  proportion  of  the  personal  property  of  the  State 
according  to  any  rules  of  legal  evidence  that  any  common 
law  court  would  adopt.  No  assessor,  under  the  laws  of  New 
York,  for  example,  in  assessing  personal  property,  can  act 
judicially.  The  law  gives  him  no  power  to  obtain  legal 
testimony  of  a  character  that  is  admissible  in  court;  he 
must  act  the  part  of  an  arbitrary  despot  against  an  incul- 
pated taxpayer,  or  not  act  at  all,  and  his  conclusions  for 
acting  must  be  reached  at  best  by  the  testimony  of  those 
who  have  no  means  of  knowing  anything,  in  a  legal  sense, 
about  the  subject-matter  under  investigation.  It  seems 
clear,  therefore,  that  any  attempt  to  tax  without  legal  evi- 
dence is  an  act  of  usurpation  or  despotism,  wholly  antago- 
nistic to  the  principles  of  a  free  government,  and  that  it  is 
a  mockery  to  characterize  such  acts  as,  in  any  sense,  judi- 
cial proceedings.  Nor  does  the  right  to  reduce  or  regulate 
the  assessment  by  the  oath  of  the  taxpayer  relieve  the  law, 
in  any  degree,  of  its  unequal  and  despotic  character;  for 
every  individual  holding  public  office  knows  that  oaths,  as 
a  guarantee  of  truth,  in  respect  to  official  statements,  have 
ceased  to  be  of  any  value.  The  assessments  made  according 
to  the  oaths  of  parties,  furthermore,  are  not  made  according 
to  legal  evidence,  upon  examination  and  proofs;  but  ac- 
cording to  the  will  and  secret  caprice  of  each  taxpayer, 
instigated  by  his  selfishness  and  the  natural  depravity  of 
human  nature.  Each  taxpayer,  under  the  present  rule, 
becomes,  therefore,  the  interpreter  not  only  of  the  law  but 
of  the  fact,  and  makes  a  secret  interpretation  of  both,  and 
we  have  as  many  interpreters  of  the  law  as  there  are  num- 
bers of  taxpayers;  and  also  an  indefinite  multiplicity  of 
assessors;  for  each  person  who  unfairly  reduces  his  own 
assessment  arbitrarily  assesses  thereby  some  other  of  the 
community  for  the  difference.  Could  or  would  any  people 
apply  the  same  rules  for  the  collection  of  debts?  Is  there 
any  one  who  has  so  much  confidence  in  human  nature 
that  he  will  propose  a  law  that  a  person  who  is  sued  shall 
be  discharged  from  all  claims  of  indebtedness  if  he  will 
make  oath,  interpreting  both  the  law  and  the  fact  him- 
self, that  he  owes  the  claimant  nothing?  Is  it  believed 
that  under  tariff  laws  the  government  could  get  sufficient 
revenue  to  pay  for  its  collection  if  the  importer  was  per- 


HONESTY  OF  RETURNS.  405 

mitted  to  offset  debts  against  the  value  of  his  goods ;  or 
if  the  law  was  peremptory  that  his  oath  alone  should  be 
given,  and  that  there  should  be  no  legal  examination,  in- 
spection, or  proof  of  the  value  or  character  of  the  impor- 
tations ? 

In  whatever  aspect,  therefore,  we  regard  the  present! 
popular  system  of  local  taxation  in  the  United  States,  it\ 
is  arbitrary  and  in  violation  of  the  principles  of  constitu-  i 
tional  government.     If  the  assessor  acta*  he  acts  solely  by 
his  despotic  will,  and  without  any  reference  to  legal  proof 
or  evidence,  such  as  is  enforced  in  recovering  private  debts ;  ; 
and  if  the  taxpayer,  by  his  oath,  becomes  the  arbiter,  his 
will  is  supreme  and  not  subject  to  investigation  or  control. 
It  is  a  system,  in  short,  that  violates  all  the  laws  of  evi- 
dence, the  growth  of  centuries  in  civilized  countries ;  that 
makes  secret  that  which  should  have  publicity,  and  proceeds  ' 
upon  a  basis  that  could  not  be  recognised  for  one  moment 
in  the  collection  of  debts,  or  in  the  trial  of  persons  accused) 
of  the  most  heinous  of  offences. 

Such,  then,  are  the  difficulties  which  all  experience  has 
shown  to  be  attendant  upon  every  attempt  to  tax  personal 
property  of  an  intangible  and  invisible  character,  and  which 
all  who  have  investigated  the  subject  acknowledge  to  be  in- 
superable. As  not  a  few,  however,  who  are  ready  to  make 
this  acknowledgment  nevertheless  insist  that  all  personal 
property  that  is  visible  and  tangible  and  can  not  be  con- 
cealed, but  can  be  reached  effectively  and  equally,  ought 
to  be  taxed ;  and  as  the  drift  of  popular  sentiment  in  the 
United  States  at  the  present  time  favours  this  assumption, 
it  is  important  to  next  consider  the  nature  and  extent  of 
the  results  attainable  by  intelligent  and  faithful  assessors 
acting  in  conformity  with  it. 

As  the  experience,  however,  of  the  States  that  have  en- 
acted the  most  precise  and  stringent  methods  of  taxation 
proves  beyond  question  that  the  returns  of  the  owners  of 
visible,  tangible  personal  property,  even  when  supported 
by  oaths,  will  not,  as  a  rule,  afford  a  basis  for  the  correct 
valuation  and  assessment  of  such  property,  the  further  as- 
sumption is  warranted  that  the  attainment  of  such  a 
result  in  even  an  approximate  degree  must  depend  on  the 
personal  visitation  and  inspection  of  the  most  intelligent 
and  honest  assessors.     And  here  at  the  very  outset  of  the 


406    THE  THEORY  AND   PRACTICE  OP  TAXATION. 

prospective  investigation  its  inherent  insuperable  difficul- 
ties begin  to  manifest  tliemselves. 

Thus  a  large  proportion  of  the  so-called  personal  prop- 
erty of  every  highly  civilized  country  which  is  not  intan- 
gible and  invisible,  and  which  requires  only  ordinary  per- 
ception for  recognition  and  valuation,  is  in  the  nature  of 
instruments  or  subjects  of  commerce  between  states  and 
nations;  such  as  railroad  machinery,  ships,  steamboats, 
immense  stocks  of  fl-aw  and  manufactured  products  accumu- 
lated in  store  for  the  sole  purpose  of  movement,  or  actually 
in  transitu.  As  a  matter  of  fact  the  granaries  for  no  small 
portion  of  the  surplus  stock  of  the  world's  cereals  are  at 
the  present  time  ships  and  railroad  cars  in  the  process  of 
movement  to  the  points  of  greatest  demand  for  consump- 
tion. What  shall  be  the  situs  of  all  such  things  for  assess- 
ment? If  actual  location  is  to  be  determinative,  then  a 
product  of  grain,  or  merchandise,  which,  in  movement  for 
a  market,  or  conversion  into  other  forms,  may  happen 
to  be  in  Illinois  in  April,  in  Ohio  or  Massachusetts  in 
May,  in  New  York  in  July,  in  New  Jersey  in  August,  and 
in  Connecticut  in  October,  will  be  liable  to  five  separate 
taxes  in  one  and  the  same  year ;  for  the  laws  of  each  of  these 
States  require  their  assessors  to  return,  for  taxation,  all 
such  property  as  at  the  periods  mentioned  may  be  actually 
within  the  sovereignty  and  jurisdiction  of  the  taxing  au- 
thority. 

If,  therefore,  the  existing  system  of  taxing  visible  and 
tangible  personal  property  in  the  United  States  is  to  be 
continued  and  made  equitable  and  effective,  the  first  essen- 
tial step  for  the  purpose  of  making  it  such,  by  preventing 
evasions  and  avoiding  duplicate  taxation  on  one  and  the 
same  persons  and  property,  is  for  all  the  States  to  agree 
that  all  their  assessors  shall  make  their  visitations,  inspec- 
tions, and  appraisements  for  the  purpose  of  assessment  on 
one  and  the  same  day,  as,  for  example,  the  first  day  of 
April.  The  following  probable  forecast  of  the  result  has 
been  made  by  a  recent  writer : 

"  On  the  appointed  day,  all  over  the  country,  a  swarm 
of  assessors  must  besiege  the  factories,  mills,  shops,  and 
stores  for  the  purpose  of  making  an  honest  valuation  of 
all  merchandise  on  land.  This  valuation  must  be  completed 
in  one  day;  or  otherwise  Smith's  valuation  being  com- 


ASSESSMENT  DAY.  407 

pleted  on  April  1st,  while  Jones's  is  left  to  April  2d,  there 
will  be  a  midnight  exodus  of  easily  portable  goods  from 
Jones  to  Smith,  so  that  one  assessor  shall  find  little  of  value 
in  the  possession  of  Jones  on  April  2d.  No  help  must  be 
asked  in  the  work  of  valuation  from  the  owners  or  clerks; 
for  if  that  is  done,  the  assessor  might  just  as  well  accept 
the  sworn  returns  of  the  owners,  as  is  done  now,  with  the 
most  ludicrous  and  inequitous  results.  As  it  is  evident 
also  that  it  would  be  impossible  for  the  owners  themselves 
to  make  such  a  valuation  in  one  day,  even  with  the  aid 
of  all  their  clerks,  there  must  be  a  number  of  assessors 
employed,  exceeding  all  the  number  of  persons  em- 
ployed in  holding  and  selling  merchandise.  The  work 
might,  however,  by  extreme  diligence  be  done  in  a  rough 
M^ay  by  two  million  local  assessors.  As  it  would  take  them 
at  least  three  days  to  tabulate,  copy,  and  file  their  returns, 
besides  the  one  day  occupied  in  valuing,  each  would  serve 
at  least  for  four  days ;  and  if  paid  at  the  rate  necessary  to 
procure  men  competent  for  the  task,  the  lowest  cost  of 
such  an  assessment,  independent  of  printing  and  station- 
ery, could  not  be  properly  estimated  at  less  than  forty 
million  dollars. 

"  Again,  on  '  assessment  day,'  there  would  be  universal 
concealment  of  all  articles  of  small  bulk  and  great  value. 
Watches,  jewels,  gold,  money  of  all  kinds,  and  every  like 
conceivable  thing  would  vanish  from  sight.  Men  would 
walk  about  stuffed  with  valuables.  Old  stoves,  pots,  and 
pans  would  be  filled  with  money  and  jewels.  Valuable 
goods  which  could  not  be  hidden  would  be  covered  with 
dust  or  otherwise  made  to  look  almost  worthless.  In  every 
mill  and  factory  manufactures  would  be  kept  in  an  un- 
finished state,  as  far  as  possible,  until  assessment  day  had 
passed.  A  thousand  devices  would  be  resorted  to  in  order 
to  reduce  the  apparent  value  of  the  things  which  the 
assessor  would  inspect,  or  to  prevent  him  from  seeing 
them  at  all. 

"  In  order  to  make  this  plan  of  official  valuations  suc- 
cessful, the  assessors  must  enter  every  room  in  every  house 
and  strip  naked  every  man  and  M^oman  whom  they  suspect 
of  concealing  taxable  property.  This  is  the  only  way  in 
which  visible,  tangible  personal  property  ever  was  or  ever 
can  be  fairly,  equally,  and  effectually  taxed. 


408    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

"  And,  when  all  this  was  done,  the  system  would  none 
the  less  fail.  It  could  not  be  made  even  approximately  cor- 
rect. Every  article  would  be  valued  very  much  too  high 
or  very  much  too  low.  Nor  would  the  average  produce  any 
fair  result.  The  goods  of  Jones  would  be  appraised  at  two 
hundred  per  cent  of  their  real  value;  the  goods  of  Smith 
at  ninety  per  cent ;  and  the  goods  of  Brown  at  fifty  per 
cent.  •  Jones  would  thus  l)e  cheated  heavily,  and  Smith 
moderately,  for  the  sole  benefit  of  Brown."  * 

On  the  other  hand,  if  the  fiction  of  law,  that  personal 
property  follows  the  owner,  is  to  govern,  then  all  such 

I  property  may  be  taxed  where  it  is  not,  and  be  exempt  from 
taxation  in  the  place  where  it  actually  is,  and  where  it 
shares  in  the  benefits  that  flow  from  the  protective  ex- 
penditures— police,  fire  department,  etc. — which  are  inci- 
dent and  necessary  to  the  locality.  Or,  as  is  very  often  and 
perhaps  most  usually  the  case,  the  same  property  is  sub- 
jected to  double  taxation;  and  as  a  proof  that  this  latter 
supposition,  which  seems  on  its  face  an  absurdity,  is  a 
matter  of  constant  experience,  it  may  be  mentioned  that 
some  years  since,  and  probably  at  the  present  time,  a  well- 
known  publishing  house  was  regularly  taxed  in  Cambridge, 
Mass.,  for  so  much  of  its  stock  in  trade  as  was  kept  in 
store  and  permanently  employed  in  business  in  New  York 
city,  although  it  was  admitted  that  the  same  tangible,  visi- 
ble property  was  at  the  same  time  regularly  taxed  by  the 
New  York  authorities ;  and,  furthermore,  when  a  protest 
was  made  to  the  Massachusetts  authorities  against  the 
continuance  of  this  injustice,  the  decision  was  rendered, 
that  under  existing  Massachusetts  statutes  the  plundered 
taxpayer  could  have  no  remedy  except  by  change  of  busi- 
ness or  change  of  (State)  residence. 

Again,  if  a  foreign  banker  subscribes  to  any  of  the 

State  or  municipal  loans  of  the  United  States,  the  bonds 

or  other  evidences  of  indebtedness  which  he  receives  in  ex- 

;  change  for  his  money  are  exempt  from  taxation  by  reason 

I  of  his  nonresidence ;  but  if  a  resident  widow  or  maimed 

\  soldier  be  moved  by  the  desire  for  security  to  purchase  a 

1  little  of  the  same  loan,  the  small  rate  of  interest  which 


*  Taxation  of  Personal  Property,  Impracticable,  Unequal,  and 
Unjust.     By  Thomas  G.  Shearman.     New  York,  1895. 


FARMERS'  AND  MERCHANTS'  TAXES.  409 

such  investments  generally  carry  will  be  made  still  smaller  ^ 
to  all  such  persons,  by  reason  of  an  annual  tax  of  from  one    > 
to  two  or  a  greater  percentage  imposed  on  the  holders,  for   ' 
the  simple  reason  that  they  are  residents;  although  the 
protection  afforded  to  the  latter  is  in  no  degree  different      ' 
from  or  greater  than  that  afforded  to  their  more  fortunate 
and  rival  foreign  competitors,  who  reside  where  such  taxes     . 
are  not  imposed;  all  of  which  is  equivalent  to  saying  offi-     |  '"^^ 
cially  that  whenever  an  American  loan,  particularly  de-     I  '     .  ' 
sirable  for  trust  investments,  is  created,  it  shall  be  sacredly 
reserved  for  foreigners,  or  that  bad  portion  of  citizens  of     , 
the  United  States  who  have  no  scruples  about  cheating  the 
assessors.     Local  subscriptions  to  local  indebtedness,  with 
the  augmentation  of  interest  in  the  locality  which  would 
necessarily  follow,  are  therefore  discouraged;  while  to  the 
American  citizen  who  ventures  to  subscribe,  residence  is 
made  an  offence  and  coupled  with  a  penalty. 

In  the  case  of  agriculturists,  who  constitute  more  than 
half  the  population  of  the  country  who  follow  gainful  occu- 
pations, their  personal  property,  consisting  mainly  of  farm 
animals,  implements,  and  farm  products,  is  always  readily 
open  for  inspection,  and  has  a  nearly  uniform  value 
throughout  the  country.  The  personal  property  of  farmers 
is  accordingly  more  completely  reached  and  more  accu- 
rately valued  by  honest  assessors  than  the  property  of  any 
other  class  of  the  population. 

Consider  next  the  case  of  merchants.  "  What  assessor, 
however  honest  and  competent,  can  personally  value  all  the 
stock  of  even  one  store,  not  to  say  the  stock  of  all  the  stores 
in  his  district?  Fancy  an  assessor  making  a  personal 
appraisal  of  the  stock  of  fifty  drug  stores,  a  hundred  dry- 
goods  stores,  and  as  many  groceries !  In  one  store  there 
are  hundreds  of  different  articles  at  different  prices,  by  the 
yard,  or  the  pound,  or  the  gallon.  Bales  of  goods  lie  side 
by  side ;  some  worth  four  cents  a  yard,  some  ten  cents,  some 
two  dollars.  The  difference  between  goods  worth  one  dollar 
a  yard  and  those  worth  two  dollars  is  often  imperceptible 
to  the  eye  of  any  one  but  an  expert.  But  how  can  an 
assessor  have  time  even  to  open  all  those  bales,  to  look  at 
them,  much  less  judge  accurately  of  their  value?  All  the 
assessors  of  New  York  city  could  not  approximately  value 
the  stock  of  one  of  its  great  drygoods  merchants  without 
27 


410    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

relying  upon  the  word  of  his  clerks.  Therefore  the  stock 
of  merchants  and  manufacturers  would  be  assessed  upon 
the  valuation  given  by  themselves,  as  in  fact  it  is  now. 
Thus  the  assessment  of  '  visible  and  tangible  property/ 
in  these  important  cases,  is  made  and  must  be  made  in 
exactly  the  same  manner  as  the  assessment  of  bonds,  notes, 
and  other  invisible  property,  resulting  in  a  double  or 
treble  burden  upon  the  simple  and  truthful  as  compared 
with  their  unscrupulous  neighbours." 

And,  finally,  as  regards  so  much  of  other  "  personal 
property  "  as  is  tangible  and  visible,  and  clearly  within  the 
territorial  jurisdiction  of  the  taxing  power,  such  as  articles 
of  personal  adornment,  clothing,  furniture,  works  of  art, 
musical  instruments,  books,  etc.,  shall  we  assume  that  we 
have  here  a  class  of  articles  on  which  it  is  desirable  to 
levy  taxes?  Of  course,  the  popular  answer  will  be  in  the 
affirmative;  for  are  not  all  these  objects,  it  may  be  asked, 
the  very  ones  best  fitted  to  sustain  taxation?  and  are  they 
not  in  great  part  luxuries  rather  than  necessaries?  But 
how,  it  may  be  asked,  are  you  going  to  tax  them  ?  for  it  is 
reasonable  to  suppose  that  if  they  are  to  be  taxed,  it  is  to 
be  by  a  system  that  works  equitably,  and  not  by  a  system 
which,  by  taxing  A,  and  letting  B,  C,  and  D  escape,  brings 
the  law  into  contempt ;  and,  by  making  the  sense  of  the 
commission  of  a  wrong  on  the  part  of  the  State  the 
excuse  for  the  commission  of  another  wrong  on  the  part 
of  the  individual,  gradually  undermines  the  morality  of  a 
community  that  does  not  wish  to  be  dishonest. 

An  even  approximately  correct  valuation  of  the  above- 
enumerated  articles  is,  however,  a  matter  of  great  diffi- 
culty, and  none  but  an  expert  can  effect  it.  In  very  many 
houses  there  are  many  articles,  like  bedding,  carpets,  pic- 
tures, glass,  porcelain,  and  the  like,  which  exhibit  few  out- 
ward indications  of  undue  value,  and  yet  whose  cost  was 
very  many  times  greater  than  similar  articles  in  ordinary 
use.  In  fact,  in  proportion  to  the  wealth  of  the  taxpayer 
would  be  the  failure  of  the  most  honest  assessor  to  esti- 
mate the  true  value  of  his  property.  Some  years  ago  a 
State  tax  commission  in  Illinois,  with  a  view  of  aiding 
assessors  to  discover  and  rightly  assess  property  of  the 
character  under  consideration,  recommended  to  the  State 
Legislature   the   enactment    of   a   statute   whereby   every 


EXEMPT  PERSONAL  PROPERTY.  411 

woman  of  "  full  age  and  sound  mind,"  either  directly  or 
by  her  representative,  should  annually  return  to  the  assess- 
ors a  statement  of  the  value  of  all  the  jewelry,  household 
furniture,  and  all  other  property  in  her  possession;  but 
these  recommendations  never  received  any  higher  consid- 
eration from  the  public  than  that  of  being  denounced  and 
laughed  at.  And  most  naturally;  for  what  woman  would 
tell  her  age  or  the  amount  and  value  of  her  jewelry  and 
finery,  and  more  especially  to  a  stranger  invested  with 
brief  official  authority  as  an  inquisitor  and  assessor? 

Again,  a  very  large  part  of  what  is  termed  "  personal 
property  "  is,  through  the  necessities,  policy,  or  organiza- 
tion of  governments,  made  exempt  from  taxation;  as,  for 
example,  all  instrumentalities  and  property  of  a  govern- 
ment— national.  State,  or  municipal — ^especially  the  bonds, 
notes,  currency,  and  certificates  of  indebtedness  issued  by 
the  United  States.  The  several  States  also  generally 
exempt  or  lightly  tax  the  deposits  and  surplus  of  savings 
banks,  the  accumulations  of  mutual  insurance  companies, 
the  property  of  charitable,  religious,  or  educational  organi- 
zations, and  also  a  comparatively  small  amount — but  large 
in  the  aggregate — of  personal  property  in  the  form  of 
household  furniture,  clothing,  working  tools,  vehicles,  and 
animals,  and  the  produce  of  farms  not  sold  but  consumed 
by  the  producers ;  and  that  the  present  tendency  of  State 
legislation  is  furthermore  to  continually  enlarge  the  list 
of  exempt  property.  The  aggregate  money  value  of  such 
exemptions  can  not  be  accurately  stated,  but  there  is  reason 
to  believe  that  they  include  about  one  fifth  of  all  the  per- 
sonal property  of  the  United  States.* 

*  The  New  Jersey  State  Board  of  Taxation,  in  their  annual 
report  for  1895,  call  attention  to  the  fact  that,  out  of  the  total 
amount  of  assessed  property  in  that  State  in  1894,  nearly  ten  per 
cent,  or  $72,786,571,  was  exempt  from  taxation.  The  amount  of 
tax  exemptions  in  Newark,  N.  J.  (a  city  which  within  recent 
years  has  been  nearly  bankrupt  by  excessive  indebtedness  and 
taxation),  is  reported  for  1897  at  $18,076,568,  made  up  in  part 
as  follows:  Churches,  $4,081,750;  private  schools,  $196,900;  city 
property.  $4,924,950;  cemeteries,  .$89.3,800;  charitable  institutions, 
$1,231,700;  public  parks,  $4,654,867.  Soldiers'  and  sailors'  widows 
have  exemption  to  the  amount  of  $523,675 ;  firemen,  $79,445 ;  the 
National  Guard,  $36,475.  Ihese  figures  do  not  include  the  railroad 
exemptions,  which  are  under  the  charge  of  the  State  Tax  Com- 
missioners. 


412    THE   THEORY   AND   PRACTICE   OF  TAXATION. 

Taxation  of  the  Instrumentalities  of  Commerce, 
— Extensive  as  has  been  the  foregoing  review  of  the  in- 
herent difficulties  attendant  on  the  attempt  to  equitably 
and  efficiently  tax  personal  property,  the  results  of  taxing 
the  instrumentalities  or  objects  of  commerce  are  especially 
worthy  of  additional  notice  in  this  connection. 

A  little  reflection  ought  to  abundantly  satisfy  that  to 
tax  the  instrumentalities  or  objects  of  commerce  in  one 
locality,  and  to  exempt  the  same  from  all  direct  taxation 
in  another,  will  clearly  not  permit  the  former  to  enter  a 
common  market  on  an  equal  basis  for  competition  with 
the  latter.  And  yet  this  unjust  discrimination  is  exactly 
what  does  result  from  the  attempt  of  a  majority  of  the 
States  of  the  Federal  Union  to  tax  all  such  instrumentali- 
ties or  objects  under  the  general  head  of  personal  property, 
and  the  exemption  of  the  same  classes  of  property  from  any 
corresponding  assessment  in  the  British  provinces  of  North 
America,  and  in  all  foreign  countries  with  which  the 
United  States  enter  into  extensive  commercial  intercourse 
and  competition.  Boards  of  trade  and  commercial  con- 
ventions may  pass  "  deploring  "  resolutions  concerning  the 
decay  of  American  commerce,  and  committees  of  Congress 
may  continue  to  investigate  the  same  subject,  but  so  long  as 
ships,  engaged  in  the  carrying  trade  on  the  free  ocean,  and 
owned  in  Canada,  England,  France,  Germany,  and  Hol- 
land, are  not  directly  taxed,  and  ships  engaged  in  compe- 
tition in  the  same  business,  and  owned  in  Portland,  Boston, 
Baltimore,  New  Orleans,  and  San  Francisco,  are  taxed, 
and  taxed  heavily,  commerce  will  incline  to  move  in  the 
paths  which  are  made  easy  and  profitable  to  it.  The  dif- 
ference in  cost  of  a  single  penny  per  bushel  in  laying 
down  grain  at  Liverpool  may  alone  be  determinative  of  the 
question  whether  millions  of  bushels  shall  be  supplied  by 
the  wheat  fields  of  the  United  States  or  those  of  Eussia, 
India,  or  Hungary. 

"  As  a  rule,  the  States  of  the  Federal  Union  tax  ship- 
ping as  other  property  is  taxed,  regardless  of  the  fact  that 
the  other  leading  maritime  nations  usually  impose  no 
taxes  on  shipping  as  property,  but  tax  only  the  actual  earn- 
ing of  shipping;  assuming  doubtless,  and  correctly,  that 
from  the  very  nature  of  its  use  shipping  can  not  fairly 
share  in  the  benefits  which  accrue  from  State  and  munici- 


INSTRUMENTALITIES  OF  COMMERCE.  413 

pal  taxation  for  public  purposes.  In  short,  when  a  vessel 
is  fulfilling  the  function  for  which  it  is  built,  it  is  navi- 
gating the  ocean,  remote,  except  during  brief  stay  in  port, 
from  the  fields  and  purposes  to  which  State  and  local  taxes 
are  applied." 

Only  one  State — Delaware — exempts  shipping  from  all 
taxation ;  New  York  and  Alabama  exempt  so  much  of  their 
shipping  as  is  engaged  in  foreign  trade;  Massachusetts, 
New  Hampshire,  and  Connecticut  tax  the  earnings  only 
of  their  shipping  in  foreign  trade ;  and,  under  decision  of 
the  United  States  Supreme  Court,  Pennsylvania  imposes 
no  tax  on  its  shipping  in  interstate  or  foreign  trade. 

All  the  other  States  tax  all  classes  of  vessels  as  personal 
property,  making  no  distinction  between  those  engaged  in 
foreign  and  domestic  trade. 

The  comparative  burden  of  taxation  on  shipping  in  the 
United  States  and  the  maritime  states  of  Europe  finds 
practical  illustration  in  the  following  examples :  The  city 
of  Portland,  Maine,  levied  more  taxes  in  the  year  1893  on 
its  shipping  (63,206  tons,  valued  at  $909,000)  than  the 
Cunard  Company  paid  to  Great  Britain  in  the  same  year 
on  a  valuation  of  their  ships  of  nearly  $9,000,000.  The 
taxation  of  shipping  at  Charleston,  S.  C,  is  five  times 
heavier  than  that  levied  by  Great  Britain  or  Germany. 
During  the  year  1893  the  city  of  San  Francisco  levied 
taxes  to  the  amount  of  $85,675  on  its  shipping,  a  sum 
within  $600  of  the  combined  taxes  paid  during  the  same 
year  by  the  Cunard  Line,  the  Hamburg-American  Line, 
the  North  German  Lloyd,  and  the  Compagnie  Generale 
Transatlantique  of  France  to  their  respective  Governments ; 
their  combined  shipping  comprising  upward  of  700,000 
tons  of  the  best  steel  and  iron  steamships  valued  at  upward 
of  $58,000,000.  And  in  addition  to  this  oneroiis  and  (in 
comparison  with  other  countries)  discriminating  burden  of 
taxation  on  shipping,  the  income-tax  act  of  1894  imposed 
an  additional  and  new  tax  of  two  per  cent  on  the  earnings 
of  shipping  in  excess  of  $4,000,  which  would  have  fallen 
mainly  on  that  portion  of  the  United  States  merchant 
marine — i.  e.,  the  great  American  steamships — which  is 
most  exposed  to  foreign  competition,  and  which  it  is  re- 
garded as  especially  desirable  to  nationally  foster. 

On  the  other  hand.  Great  Britain,  Germany,  France, 


414    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

and  the  Netherlands  tax  only  the  earnings  of  shipping 
— i.  e.,  an  income  tax.  Austria  in  1894  suspended  for  five 
years  all  taxation  of  its  vessels  engaged  in  foreign  trade. 
Under  this  system  of  vessel  taxation  by  the  great  mari- 
time countries  of  Europe  it  is,  furthermore,  to  be  noted 
that  the  ownership  of  a  ship  that  is  idle  and  not  earning 
does  not  entail  any  burden  of  taxation;  but  in  the  United 
States  it  makes  no  difference  whether  a  ship  be  at  work 
or  idle,  profitably  or  unprofitably  employed,  she  pays  taxes 
all  the  same. 

The  experience  of  the  several  States  in  respect  to  the 
taxation  of  vessels  affords,  however,  a  very  striking  illus- 
tration of  the  facility  with  which  obnoxious  taxes  are 
evaded  in  the  United  States,  or  shifted  upon  those  who 
are  less  able  to  bear  them,  and  is  thus  related  in  the  Ee- 
port  of  the  United  States  Commissioner  of  Navigation 
for  1894:  "It  is  relatively  an  easy  matter  for  the  owner 
of  several  vessels  to  form  a  partnership  with  the  resident 
of  another  State  in  which  low  taxes  are  imposed  on  ship- 
ping, and  by  allowing  the  vessels  to  stand  in  the  name  of 
such  partner  to  escape  the  endeavour  of  the  law  to  tax 
him  more  than  his  competitors  in  navigation  are  taxed. 
Thus,  some  years  since,  the  authorities  in  Chicago  decided 
to  tax  the  shipping  owned  at  that  port  on  its  full  insurable 
value  at  the  rate  fixed  for  municipal  taxes.  The  vessel 
owners  of  the  city,  in  self-defence  and  to  enable  them  to 
continue  in  business  against  competing  ports,  were  com- 
pelled to  make  nominal  transfers  of  their  property,  and 
thousands  of  tons  of  shipping,  doubtless  owned  in  Chicago, 
appear  on  the  records  of  the  National  Bureau  of  Naviga- 
tion as  owned  in  other  States.  Though  in  the  number  and 
tonnage  of  its  entries  and  clearances  Chicago  ranks  with 
the  greatest  ports  of  the  maritime  world,  yet  its  apparent 
rank  as  a  ship-owning  port  is  insignificant." 

It  is  important  also  to  notice  how  changes  in  the  meth- 
ods of  doing  business,  in  the  facilities  for  transporting 
persons  and  property,  and  in  the  constitution  of  society 
and  standards  of  morality,  antagonize  and  nullify  the  popu- 
lar ideas  concerning  taxation  of  personal  property. 

Formerly  (as  has  been  already  pointed  out)  a  man 
could  not  conveniently  live  in  one  place  and  carry  on 
business  in  another.    But  now  men  may  live  and  be  taxed 


STANDARD  OF  MORALITY,  415 

at  places  where  the  taxes  are  light  and  do  business  every 
day  in  a  city  twenty,  thirty,  or  fifty  miles  distant  where 
taxes  are  high,  and  there  be  exempt  from  all  taxation. 
And  yet  how  are  you  going  to  prevent  a  citizen  from  decid- 
ing for  himself  where  he  will  live  and  where,  under  the 
laecepted  fiction  of  law  that  personal  property  follows  the 
jowner,  his  personal  property  shall  be  taxed?  Formerly, 
to  bargain  for  the  sale  of  goods  in  a  place  not  farther 
removed  than  New  York  is  from  Boston  or  Philadelphia, 
transport  them  there,  and  receive  the  proceeds  of  the  sale, 
was  an  affair  of  weeks.  Now  a  man  living  in  Boston  may 
bargain  for  a  sale  of  thousands  of  dollars'  worth  of  goods 
in  New  York,  transport  them  there,  and  receive  his  pay 
in  the  space  of  a  single  day.  Nay,  more.  A  man  may 
acquire  property  and  part  with  it  at  places  on  the  opposite 
side  of  the  globe  with  the  greatest  ease  and  security  within 
the  space  of  a  few  hours. 

A  change  in  the  standards  of  morality  has  been  alluded 
to  as  antagonizing  methods  of  taxation.  Thus,  not  very 
many  years  ago,  every  man  knew,  at  least  approximately, 
the  amount  and  kind  of  property  of  all  his  neighbours, 
and  knew  that  his  neighbours  knew  the  same  in  respect 
to  himself.  "  He  was  willing  to  admit,  under  oath  or 
otherwise, '  what  everybody  knew ;  and  he  would  hardly 
dare  to  drive  six  cows  to  pasture  every  morning  and  swear 
in  the  afternoon  that  he  had  none."  But  now  let  us  see 
from  an  indisputable  experience  of  very  recent  date  how 
the  conditions  of  property  and  of  morals  have  changed. 
Previous  to  January  1,  1889,  the  State  of  Connecticut, 
in  accordance  with  common  practice,  taxed  personal  prop- 
erty in  the  form  of  bonds  and  notes  from  one  to  two  or 
more  per  cent,  wherever  it  could  be  found.  The  result 
was  that  the  State  from  the  outset  could  never  reach  for 
assessment  but  a  small  fraction  of  such  property,  although 
every  citizen  was  required  to  annually  submit  a  list  to  the 
assessors  and  make  oath  that  he  had  included  in  it  all 
property  of  the  character  in  question;  and  this  fraction, 
furthermore,  tended  to  rapidly  decrease.  Thus,  in  the  so- 
called  grand  list  or  aggregate  valuation  of  the  State  for 
the  year  1855,  the  value  of  the  notes,  bonds,  and  money 
at  interest  made  subject  to  assessment  constituted  about 
ten  per  cent  of  the  entire  taxable  property  of  the  State. 


416    THE  THEORY  AND   PRACTICE  OF   TAXATION. 

In  1865  it  was  about  seven  and  one  half  per  cent;  in  1875 
a  little  over  five  per  cent,  and  in  1885  about  three  and 
three  quarters  per  cent;  and  yet  during  the  period  covered 
by  these  statistics  it  is  probable  that  the  amount  of  State, 
railroad,  municipal,  and  farm-mortgage  bonds  owned  by 
the  citizens  of  Connecticut  increased  to  an  extent  equal 
to  at  least  one  half  the  valuation  of  all  the  other  property 
in  the  State  returned  and  made  subject  to  taxation.  In 
1855  the  inhabitants  of  eighty-one  towns  of  the  State  did 
not  own  a  single  mortgage  bond.  Not  a  bond  was  returned 
as  owned  in  the  rich  city  of  Meriden.  The  twenty  thou- 
sand inhabitants  of  the  thriving  city  of  Waterbury  by  their 
united  efforts  managed  to  scrape  together  only  seven  hun- 
dred and  fifty  dollars  in  bonds.  So  far  as  cash  is  con- 
cerned, there  was  never  a  community  since  mankind 
emerged  from  a  state  of  barter  that  got  along  with  so  little. 
In  1889,  however,  the  Legislature  of  Connecticut  modified 
her  former  statutes,  and  provided  that  the  owners  of  all 
notes  and  bonds  who  would  register  them  with  the  State 
Treasurer,  and  agree  to  pay  in  advance  a  tax  of  one  fifth 
of  one  per  cent  per  annum  for  a  period  of  five  years,  should 
be  exempted  from  all  further  State  or  local  taxation  on  the 
same.  Jfote  now  the  results.  The  law  in  question  went 
into  operation  on  the  1st  of  August,  1889,  and  between 
that  date  and  the  1st  of  January  succeeding,  something 
over  $30,000,000  of  bonds  and  notes  were  registered  under 
the  modified  assessment,*  of  which  the  treasurer  in  his 
report  to  the  Legislature  says,  "  Probably  at  least  three 
fourths  have  never  paid  any  taxes  whatsoever."  Here, 
then,  within  five  months  was  uncovered  to  the  taxing  power 
a  quantity  of  what  the  law  makes  property  in  excess  of 
$22,000,000,  and  returns  are  still  being  received  in  large 
volume.  The  conclusion,  therefore,  seems  to  be  that  there 
is  a  good  deal  of  conscience  in  the  highly  moral  State  of 
Connecticut  which  can  be  induced  to  cheat  and  forswear  on 
a  two-per-cent  tax,  that  can  not  be  bribed  on  a  tax  of  one 

*  For  succeeding  years  the  amounts  registered  with  the  State 
Treasurer  were  returned  as  follows:  1890,  $33,654,335;  1891,  $24,- 
792,509:  1892,  $.39,473,988;  1893.  $12,418,673;  1894,  $20,507,396; 
1895,  $18,533,543;  1896,  $21,159,161.  Why  the  large  difference  in 
the  receipts  of  the  above  years  occurred  has  not  been  satisfactorily 
accounted  for  by  the  State  officials. 


EXPERIENCE  OF  CONNECTICUT.  4,17 

fifth  of  one  per  cent;  or  that  a  tax  of  from  one  to  two  per 
cent  on  bonds  and  notes  in  Connecticut  is  sufficient  to 
nearly  tax  out  of  existence  all  conscientious  scruples  of 
its  people  in  respect  to  the  violation  of  law  and  the  perpe- 
tration of  fraud  in  respect  to  matters  of  taxation.* 

In  view  of  these  facts  the  following  answer,  made  some 
years  ago  by  a  man  of  New  England  birth  and  education, 
but  of  unenviable  character  and  influence,  to  a  question 
as  to  his  father's  honesty,  has  no  little  of  point  and  appli- 
cation :  "  He  is  honest  as  the  world  goes.  He  won't  tell  a 
lie  for  twelve  and  a  half  cents  "  (the  New  England  nine- 
pence),  "  but  he  will  tell  eight  for  a  dollar." 

•  In  1897  the  Legislature  of  Connecticut,  not  satisfied  with  the 
unexpected  large  amount  of  notes  and  bonds  returned  for  taxation 
at  the  rate  of  one  fifth  of  one  per  centum  per  annum  when  volun- 
tarily paid  in  advance,  doubled  the  rate  of  tax  to  two  fifths  of  one 
per  cent,  or  four  mills  on  the  dollar.  What  will  be  the  result  of 
this  fiscal  policy  is  yet  to  be  determined;  but  it  is  to  be  regretted 
that  the  original  experiment  could  not  have  been  longer  continued. 


CHAPTER  XIX. 

THE    EXISTING    METHODS    OF    TAXATION. 
PART    III. 

Distinction  between  "  Real  "  and  "  Personal  " 
Property  Artificial  and  not  Natural. — As  a  further 
help  to  the  understanding  of  the  subject,  it  is  important 
to  here  call  attention  to  the  circumstance  that  the  distinc- 
tion between  real  and  personal  property  is,  to  a  very  great 
extent,  an  artificial  and  not  a  natural  one,  and  that  there 
is  not  only  no  common  or  accepted  rule  for  their  definition 
and  distinction,  but,  on  the  contrary,  a  great  diversity  of 
statute  enactment  by  the  different  States  of  the  Federal 
Union  and  by  foreign  governments  on  the  subject.  (For 
abundant  illustrations  in  proof  of  this  statement,  see  page 
374.)  "  The  statute  laws  on  the  subject  of  taxation  in 
the  United  States,"  says  Mr.  Hillard,  in  his  Law  of  Taxa- 
tion, "  is  as  voluminous  as  the  constitutional  provisions 
are  few  and  concise."  With  a  general  similarity,  the  laws 
of  the  different  States  are  very  diverse;  and  so  numerous 
and  frequent  are  the  changes  that  the  author  disclaims 
any  responsibility  in  his  book  for  the  implied  statement 
that  "  the  law  of  any  particular  State,  however  recent,  is 
now  in  force." 

The  attempt,  therefore,  to  recognise  in  a  system  of  laws 
a  distinction  in  respect  to  the  so-called  personal  property 
that  is  perfectly  arbitrary,  and  which  forty-eight  sover- 
eign States  of  the  Federal  Union  may  alter  at  pleasure,  is 
very  likely  to  give  a  general  result  somewhat  akin  to  that 
obtained  by  an  artist  who,  in  painting  a  landscape,  selected 
a  cow  as  his  fixed  point  of  perspective.  If  the  cow  had 
remained  quiet,  the  picture  might  have  been  satisfactory; 
but  as  the  cow  walked  off,  the  details  of  the  picture  were 
not  harmonious. 
418 


LAND  AND  PERSONAL  PROPERTY.      419 

Value  Eelations  of  Land  and  Productive  Capi- 
tal.— One  curious  phenomenon  attending  the  remarkable 
changes  that  have  talcen  place  within  the  last  half  century 
in  the  conditions  of  production  and  distribution  of  wealth, 
has  been  the  more  rapid  increase  in  all  countries  of  high 
civilization  of  that  portion  of  their  national  wealth  repre- 
sented by  the  so-called  personal  property  than  in  that 
portion  represented  by  the  value  of  land.  Thus,  in  Great 
Britain,  at  the  commencement  of  the  present  century,  the 
value  of  land  was  believed  to  represent  about  forty  per 
cent  of  the  aggregate  wealth  or  property  of  the  kingdom. 
At  the  present  time  it  probably  does  not  represent  more 
than  twenty-five  per  cent  of  such  aggregate.  In  the 
United  States  the  increase  in  recent  years  of  personal  prop- 
erty has  been  so  remarkable  as  to  entitle  it  to  be  regarded 
as  phenomenal;  and  it  can  not  be  doubted  that  in  highly 
civilized  and  densely  populated  States,  like  New  York, 
Massachusetts,  Ehode  Island,  etc.,  the  aggregate  of  prop- 
erty classed  as  "  personal "  is  greater  in  actual  value  than 
the  aggregate  of  "  real "  property.  In  the  great  American 
cities  the  value  of  personal  property  probably  closely  ap- 
proximates the  English  proportion.  A  recent  report  of  the 
Boston  Business  Association  expresses  an  opinion  that  the 
value  of  the  personal  property  of  that  city  is  three  or  four 
fold  that  of  its  realty !  And  yet  the  amount  of  personal 
property  made  available  for  tax  assessments  shows  every- 
where a  remarkable  decrease ;  and  this,  notwithstanding 
a  great  concurrent  increase  in  population  and  in  the  as- 
sessed value  of  real  estate.  It  may  also  be  regarded  almost 
an  economic  axiom,  that  universally  the  market  value  of 
the  aggregate  of  land  and  that  of  the  aggregate  of  other 
productive  capital  are  equal ;  and  for  the  reason  that  the 
market  value  of  land  is  merely  the  reflection  of  the  value 
of  the  productive  capital  placed  upon  it  and  its  immediate 
vicinity.  It  would  therefore  seem  to  be  certain  that  the 
decline  in  the  valuations  of  personal  property,  above  noted, 
is  not  real,  but  simply  represents  the  failure  and  utter  in- 
efficiency of  the  existing  laws  which  have  been  enacted 
with  a  view  of  assessing  and  collecting  taxes  upon  such 
property. 

The  following  are  some  of  the  most  striking  illustra- 
tions of  the  decline  of  tax  valuations  of  personal  property 


420    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

in  recent  years  in  the  United  States:  Thus,  in  1866,  the 
valuation  of  the  city  of  Cincinnati,  Ohio,  for  purposes  of 
taxation  was,  realty  $66,454,603,  personalty  $67,218,101. 
In  1892 — twenty-six  years  after — the  tax  vahiation  of  the 
real  estate  of  the  city  was  $144,708,810,  while  its  personal 
property  had  decreased  to  $44,735,670;  or,  in  other  words, 
while  the  personal  property  of  Cincinnati  returned  for 
taxation  in  1866  was  greater  than  the  returned  amount 
of  real  estate,  the  amount  returned  in  1892  was  only  about 
a  quarter  as  much  as  the  real  estate;  and  yet  during  this 
quarter  of  a  century  the  city  of  Cincinnati  nearly  doubled 
its  population,  and  undoubtedly  increased  its  wealth  in  a 
far  greater  proportion.  In  the  city  of  Boston  the  value  of 
the  realty  returned  for  taxation  in  1868  was  $287,635,800, 
and  of  personalty  $205,937,300.  In  1890  the  correspond- 
ing figures  were,  realty  $619,990,275,  personalty  $202,- 
V.  051,525,  a  disproportionate  gain  of  realty  of  $417,^938,750. 
^\r  /  In  the  State  of  Massachusetts  in  1862  personalty  was 
t>\/ assessed  at  $309,000,000  to  $552,000,000  of  real  estate,  or 
y  /  in  the  ratio  of  fifty-six  per  cent  of  the  latter.  In  1891  the 
r  /•  personalty  was  $556,000,000  to  $1,679,000,000  of  real 
estate,  or  in  the  ratio  of  thirty-three  and  a  third  per  cent. 
That  is,  the  personalty  of  the  State  in  twenty-nine  years 
increased  only  $243,000,000,  while  the  real  estate  increased 
$1,123,000,000,  or  nearly  five  times  as  much  in  the  same 
time.  "  This  simply  means  that  more  and  more  personal 
property,  under  the  rigid  tax  system  of  Massachusetts, 
escapes  taxation.  The  real  estate  can  not  have  increased  in 
value  without  an  increase  in  personal  wealth  with  which 
to  increase  the  demand  for  it.  Eeal  estate  does  not  make 
a  demand  for  itself."  In  1870  the  personal  property  of  the 
entire  State  of  Massachusetts  returned  for  taxation  repre- 
sented an  average  of  $345  per  capita. 

It  will  be  noted  that  the  above  exhibits  represent  the 
lengthened  experience  of  the  two  States  which  adhere  most 
closely  to  the  infinitesimal  theory  of  taxation;  have  a  sys- 
tem of  most  comprehensive  and  explicit  laws,  framed  by 
officials  and  enacted  by  legislators  who  believe  in  their 
theory,  and  a  system  of  arbitrary  administration  that  finds 
no  parallel,  except  in  thoroughly  despotic  countries,  and  is 
wholly  antagonistic  to  the  principles  of  a  free  government. 

The  experience  of  other  States,  where,  under  substan- 


UNTAXED   PERSONAL  PROPERTY.  421 

tially  the  same  provision  for  the  taxation  of  personal  prop- 
erty, the  administration  is  less  rigorous,  is  also  most  in- 
structive. 

In  Jersey  City,  IST.  J.,  the  tax  valuation  in  1892  of  realty 
was  $78,176,000,  and  of  personalty  $6,539,750.  In  1870 
the  valuation  of  realty  in  the  city  of  Brooklyn,  N.  Y.,  was 
$183,689,000,  and  of  personalty  $17,559,980.  In  1893 
the  corresponding  valuations  were  $486,497,000  realty, 
$17,559,000  personalty;  and  of  the  latter  only  $7,078,000 
was  assessed  against  individuals,  the  remainder  being  prop- 
erty of  banks  and  corporations.  Of  the  entire  property 
of  JBrooklyn  taken  cognizance  of  by  its  tax  officials  in  1893, 
only  1.35  per  cent  of  the  whole  was  personalty  proper. 

In  1870  the  entire  value  of  the  personalty  of  the  city 
of  New  York,  including  bonds,  jewels,  pictures,  furniture, 
bric-a-brac,  etc.,  was  put  down  by  its  assessors  for  taxation 
at  $281,142,696 ;  in  1893  the  corresponding  valuation  was 
$370,936,000,  of  which  less  than  half  was  personal  estate 
proper,  the  remainder  being  various  forms  of  corporate 
property,  although  it  is  reasonably  certain  that  less  than 
twenty  men,  residents  of  the  city,  held  personal  property 
in  excess  of  this  amount. 

In  1870  the  personal  property  of  the  entire  State  of 
New  York  returned  for  taxation  represented  an  average  of 
$99.13  per  capita.  In  1893  this  average  had  fallen  to 
$68.75  per  capita.  In  Connecticut,  in  1855,  as  before 
shown,  State  stocks,  railroad,  city,  and  other  bonds,  and 
money  at  interest  constituted  about  ten  per  cent  of  the 
aggregate  assessed  valuation  of  property  of  the  State.  In 
1885  the  corresponding  proportion  for  taxation  was  three 
and  three  fourths  per  cent. 

Similar  illustrations  drawn  from  the  recent  tax  experi- 
ences of  nearly  every  State  in  the  Union  might  be  indefi- 
nitely multiplied,  and  in  the  most  western  States  of  the 
Union,  where  the  com.munities  are  mainly  agricultural,  the 
opinion  of  officials  is  also  to  the  effect  that  personal  prop- 
erty, as  a  rule,  exceeds  realty,  and  to  a  great  extent  escapes 
assessment  and  taxation. 

Another  curious  and  interesting  feature  of  the  situation 
is  that  in  all  those  States  where  the  most  minute  and  thor- 
ough system  of  questioning  with  respect  to  the  ownership 
of  personal   property   prevails,   investigation   shows   that, 


422    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

notwithstanding  the  acknowledged  great  increase  in  wealth 
in  the  form  of  personal  property  in  recent  years,  the  skill 
of  its  owners  in  concealing  it  has  grown  more  rapidly; 
or,  in  other  words,  in  every  State  in  which  a  vigorous 
attempt  has  been  made  to  reach  and  assess  all  the  personal 
property  of  its  citizens,  a  smaller  percentage  of  such  prop- 
erty is  taxed  to-day  than  was  effected  under  operation  of 
laws  a  quarter  of  a  century  ago. 

Kesults  of  Eecent  Administrative  Experiences. 
— A  notice  of  some  comparatively  recent  administrative 
experiences  in  attempting  to  successfully  enforce  taxation 
of  personal  property  is  especially  pertinent  at  this  point. 

In  1879  California  proposed  a  new  Constitution.  It 
was  drafted  in  accordance  with  what  was  supposed  to  bo 
the  interest  of  the  agricultural  voters  of  the  State,  and  was 
by  them  ratified,  the  merchants,  commercial  and  financial 
interests  being  almost  unanimously  arrayed  in  opposition 
and  voting  against  it.  Under  this  Constitution  and  the 
laws  made  in  pursuance  of  it,  the  results  have  been  thus 
summarized :  "  Not  only  were  bonds,  money,  and  credits 
taxable,  without  any  deduction  on  account  of  debts,  except 
from  credits,  and  then  only  such  debts  as  were  due  to 
residents  of  the  State  of  California,  but  holders  of  stock 
in  corporations  were  avowedly  and  intentionally  subjected 
to  double  taxation;  first,  upon  the  corporate  property,  and 
again  upon  the  capital  stock,  which  is  merely  their  evidence 
of  title  to  that  property.  It  was  supposed,  alike  by  the 
friends  and  enemies  of  the  new  Constitution,  that  under 
its  operation  personal  property  of  every  description  would 
be  thoroughly  reached,  and  at  any  rate  that  whatever  was 
by  any  chance  overlooked  would  be  more  than  made  up 
by  double  taxation  upon  that  which  was  found.  The  actual 
result  has  been  to  falsify  all  the  predictions  of  both  the 
friends  and  enemies  of  the  Constitution — for  it  has  done 
no  good,  and  very  little  harm,  except  in  promoting  fraud 
— for  the  reason  that  the  capacity  of  the  patriotic  taxpayer 
to  commit  perjury  and  the  susceptibility  of  assessors  to 
bribery  have  been  altogether  underestimated." 

Some  of  the  results  have  been  positively  ludicrous.  "  If 
the  assessment  returns  are  to  be  believed,  in  nine  tenths 
of  California  there  is  not  a  pound  of  butter;  in  four  fifths 
of  the  State  the  sheep  do  not  produce  any  wool ;  fifty  coun- 


EXPERIENCE  OF  CALIFORNIA.  423 

ties  have  quantities  of  beehives,  but  only  four  have  any 
honey ;  personal  property  is  vanishing  from  San  Francisco ; 
loans  of  money  are  becoming  unknown  in  the  rest  of  the 
State;  bonds  of  cities  and  municipalities  of  all  kinds  are 
not  held  within  the  State  to  an  amount  equal  to  one  sixth 
of  the  county  bonds  outstanding  alone ;  and,  finally,  money 
has  been  smitten  by  a  pestilence,  two  thirds  of  all  that 
there  was  before  the  adoption  of  the  Constitution  having 
already  taken  to  itself  wings,  and  the  remainder  being 
evidently  on  the  way.  One  of  the  great  objects  of  the  new 
Constitution  was  to  tax  railroad,  telegraph,  and  telephone 
companies  to  the  last  cent  of  their  value.  The  actual  re- 
sult has  been  that  telegraph  and  telephone  companies  are 
now  assessed  for  the  cost  of  less  than  their  bare  poles,  or 
about  sixty-five  dollars  per  mile.  The  railroad  companies 
resisted  taxation  for  one  or  two  years,  at  the  end  of  which, 
by  a  singularly  simultaneous  impulse  of  virtue,  some  thirty 
boards  of  supervisors  directed  their  district  attorneys 
rigorously  to  prosecute  the  railroad  companies  to  the 
uttermost  of  the  law.  Thirty  district  attorneys  forthwith 
hauled  the  railroad  companies  before  the  magistrates  of 
justice.  With  equal  promptness  the  thirty  boards  of  su- 
pervisors met,  and,  without  any  consultation  with  each 
other,  passed  resolutions  directing  the  district  attorneys 
to  compromise  all  suits  at  sixty  per  cent  of  the  amount 
claimed ;  and  the  thirty  district  attorneys  obeyed  before 
the  State  officers  could  put  in  a  protest." 

It  was  anticipated  that  the  new  order  of  things  would 
increase  the  burden  of  taxation  on  the  city  of  San  Fran- 
cisco, and  especially  on  personal  property  and  money  at 
interest.  What  actually  happened  is  shown  by  the  follow- 
ing figures:  In  1880,  before  the  new  laws  became  opera- 
tive, the  city  of  San  Francisco  paid  taxes  on  a  valuation 
of  $68,58fi,000  of  personal  property  not  money,  and  on 
$19,747,000  of  money  at  interest  or  otherwise.  "  In  1886, 
after  the  law  had  been  operative  for  five  years,  it  paid  on  a 
valuation  of  $48,705,000  of  personal  property,  a  decline  of 
one  third,  and  $6,188,000  of  money,  a  decline  of  two  thirds. 
In  1894,  after  the  law  had  been  in  operation  for  fourteen 
years,  it  paid  on  a  valuation  of  $56,130,000  of  personal 
property,  a  decline  of  $12,454,000,  and  $7,100,000  of 
money  at  interest,  a  decline  of  $12,647,000. 


424    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

It  was  naturally  supposed  that  the  new  Constitution 
would  have  great  influence  in  increasing  the  assessment  of 
personal  property  in  the  form  of  tangible,  visible  merchan- 
dise, and  of  bonds  and  credits.  But  the  assessors  of  San 
Francisco  found  less  of  merchandise  to  tax  in  1886  in  that 
city  than  they  did  in  1880;  and  less  in  1894  than  they  did 
in  1880,  while  the  value  of  bonds  returned  by  its  citizens 
declined  from  $3,311,000  in  1880  to  $449,000  in  1886. 
The  total  increase  in  the  valuation  of  merchandise  for 
bonds  and  credits  for  taxation  in  the  fourteen  years  from 
1875  to  1889  was  less  than  one  per  cent. 

The  most  recent,  important,  and  incontrovertible  record, 
however,  of  administrative  experiences  on  this  subject  is 
to  be  found  in  the  report  of  a  tax  commission  authorized 
by  the  Legislature  of  Ohio,  composed  of  four  eminently 
qualified  citizens — two  Eepublicans  and  two  Democrats — 
and  presented  to  the  Governor  of  that  State  in  December, 
1893.  It  is  no  exaggeration  to  say  that,  since  the  days  of 
the  French  monarchy  under  Louis  XVI,  no  report  has  been 
or  could  be  made  more  discreditable  to  the  people  of  any 
country  claiming  to  be  civilized,  honest,  and  law-abiding. 

The  report  first  shows  that  Ohio  has  "  the  most  efficient 
and  minute  scheme  "  of  listing  in  duplicate  "  all  classes  of 
property  " — dogs  specially  included — "  which  has  been  de- 
vised in  any  State."  "  Every  citizen  is  bound  under  oath 
to  make  a  complete  return  of  his  property,"  embracing  all 
forms  of  personalty.  "  If  he  declines  to  make  the  oath 
required  by  law,  a  penalty  of  fifty  per  cent  is  added."  This 
listing  system  in  Ohio  is  characterized  by  the  commission 
as  like  "  the  assessment  list  used  in  Germany  in  mediaeval 
times  (1531),"  which  it  further  asserts  "has  been  aban- 
doned everywhere  in  Europe."  The  statute  provides  that 
a  designated  official  "  may  through  the  probate  court  call 
before  him  the  citizen  and  examine  him  if  he  suspects 
that  the  return  is  not  a  complete  one  " ;  and  in  addition 
to  all  this  the  law  empowers  each  county  to  contract  with 
such  persons — "tax  inquisitors" — who  may  give  informa- 
tion as  to  any  personal  property  that  has  been  "  improperly 
withheld  from  the  returns  " ;  and  who  shall  be  "  rewarded  " 
to  the  extent  of  twenty  per  cent  of  the  amount  of  tax  "  re- 
covered through  their  efforts." 

From  a  large  amount  of  evidence  collected  by  the  com- 


PERSONAL  PROPERTY  IN  OHIO.  425 

missioners  and  officially  published  by  the  State,  the  fol- 
lowing selections  illustrate  the  efficacy  and  workings  of  this 
system  and  its  statutes  : 

For  the  year  1891  the  gross  amount  of  revenue  col- 
lected in  the  whole  State  of  Ohio  through  the  operation  of 
the  tax  inquisitorial  law  was  about  $750,000,  or  about  two 
per  cent  of  the  entire  taxes  of  the  State.  For  the  nine 
years  from  1885  to  1893  inclusive,  during  which  time  this 
act  was  operative  in  Hamilton  County,  which  is  mainly  the 
great  and  rich  city  of  Cincinnati,  the  whole  amount  of  taxes 
paid  by  its  citizens  was  about  $50,000,000,  of  which  less 
than  $400,000  accrued  through  the  operation  of  this 
agency.  It  is  probable,  however,  that  through  its  moral 
influence  the  taxpayers  were  induced  to  make  larger  re- 
turns of  personal  property  than  they  would  otherwise  do. 
On  the  other  hand,  the  commission  reports,  as  a  general 
effect  of  the  "  tax  inquisitor  law  "  in  city  countries  that 
when  a  man  of  large  wealth  is  made  to  pay  through  its 
agency  he  leaves  the  State;  but  in  the  country  counties, 
as  the  man  of  means  is  not  able  to  sell  his  property  and 
remove  from  the  State,  he  is  forced  to  remain  and  pay 
the  tax. 

Again,  the  laws  of  Ohio  require  that  all  moneys  owned 
by  its  citizens  shall  be  annually  returned  for  taxation. 
For  the  whole  State  the  tax  commission  reports  that  there 
was  on  deposit  in  the  year  1892  to  the  credit  of  individuals 
in  national.  State,  and  private  banks,  and  exclusive  of 
moneys  redeposited  by  one  bank  with  others,  at  least  $190,- 
000,000,  "and  probablv  a  much  larger  amount."  Of  this 
$190,000,000,  there  was  returned  in  1893  for  taxation  a 
little  over  $38,000,000.  In  connection  with  this  experi- 
ence the  commission  calls  attention  to  the  following  other 
extremely  significant  facts:  "Of  this  estimate  of  $190,- 
000,000,  about  128,000.000  was  deposited  in  the  banks  of 
the  five  counties  containing  the  cities  of  Cincinnati,  Toledo, 
Cleveland,  Dayton,  and  Columbus.  These  same  counties, 
however,  returned  for  taxation  only  $6,088,096,  while  the 
remainder  of  the  State,  having  about  $70,000,000  in  bank 
deposits,  returned  over  $32,000,000.  In  the  spring  of 
1892  there  were  on  deposit  in  the  various  banks  (national. 
State,  and  savings)  of  the  city  of  Cleveland  about  $63,- 
000,000.  Of  this  money  there  was  returned  for  taxation 
28 


)( 


426    THE  THEORY  AND   PRACTICE  OP  TAXATION. 

in  that  same  year  only  $1,800,593 ;  and  about  half  of  this 
sum  was  derived  from  the  townships  outside  of  the  city." 
The  final  conclusions  of  the  commission  were  that 
"while  in  the  country  counties"  (of  Ohio),  "where  the 
•  assessor  is  personally  acquainted  with  the  circumstances  of 
the  taxpayer,  and  knows  his  wealth,  the  taxation  of  in- 
tangible property  is  perhaps  feasible,  it  is  in  the  city  coun- 
ties "  an  utter  failure.  The  general  property  tax  has  be- 
come in  the  city  counties  "  (of  the  State),  "  to  a  very  con- 
siderable extent,  a  tax  upon  tangible  property  only;  and 
that  no  appreciable  part  of  the  intangible  property  exist- 
ing in  the  city  counties  is  reached  by  our  method  of  taxa- 
tion." 

i      The   net   result  of  all   the  comparisons   made  by  the 

/Ohio   commissioners   between   city   and   farming   districts 

/  finally  goes  to  prove  that  ilie  tax  upon  personal  property 

I  makes  farmers  pay  from  four  dollars  to  seven  dollars  where 

I   it  mahes  the  residents  of  large  cities  pay  one  dollar. 

Speaking  generally  of  the  effect  of  this  Ohio  scheme 
of  taxation  the  commission  further  says : 

"  The  system  as  it  is  actually  administered  results  in 
debauching  the  moral  sense.  It  is  a  school  of  perjury.  It 
sends  large  amounts  of  property  into  hiding.  It  drives 
capital  in  large  quantities  from  the  State.  Worst  of  all,  it 
imposes  unjust  burdens  upon  various  classes  in  the  com- 
munity: upon  the  farmer  in  the  country,  all  of  whose 
property  is  taxed  because  it  is  tangible ;  upon  the  man  who 
is  scrupulously  honest;  and  upon  the  guardian,  executor, 
and  trustee,  whose  accounts  are  matters  of  public  record. 
These  burdens  are  unjust  because  by  the  system  as  admin- 
istered these  people  pay  the  taxes  which  should  be  paid  by 
their  neighbours."  And  the  commissioners  finally  add  that 
"  these  conclusions  are  in  accord  with  all  current  authori- 
y   ties  on  the  subject."  * 

'  That  this  claim  of  accordance  on  the  part  of  the  Ohio 

commissioners  is  fully  warranted,  attention  is  next  asked 
to  the  conclusions  of  other  State  commissions  which  within 
a  comparatively  recent  period  have  also  officially  investi- 
gated and  reported  upon  this  subject.     Thus,  a  tax  com- 

*  See  Carver,  The  Ohio  Tax  Inquisitor  Law,  in  the  publieationa 
of  the  American  Economic  Association. 


STATE  TAX  COMMISSIONS.  427 

mission  of  New  Hampshire  in  1876,  after  recognising  the 
inefficiency  of  the  existing  laws  for  the  taxation  of  personal 
property  and  "  their  corrupting  and  demoralizing  influ- 
ences," "  frankly  admit  that  they  are  unable  to  frame  any 
law  to  which  a  free  people  would  submit,  or  should  be  asked 
to  submit,  that  will  bring  this  class  of  property  under 
actual  assessment  more  effectually  than  it  now  is."  An 
Illinois  commission  in  1886  asserted  that  the  existing  sys- 
tem "  is  debauching  to  the  conscience  and  subversive  of 
the  public  morals — a  school  for  perjury,  promoted  by  law." 
A  Connecticut  commission  in  1887  reported  that  "  the 
results  of  an  investigation  of  nearly  three  years  into  the 
workings  of  our  tax  system  have  brought  us  to  the  conclu- 
sion that  all  items  of  intangible  property  ought  to  be 
struck  out  of  the  list.  As  the  law  stands  it  may  be  a 
burden  upon  the  conscience  of  many,  but  it  is  a  burden 
on  the  property  of  the  few,  not  because  there  are  few  who 
ought  to  pay,  but  because  there  are  few  who  can  be  made 
to  pay."  A  West  Virginia  commission  in  1884  asserted 
that  "the  payment  of  the  tax  on  personalty"  (in  the 
State)  "  is  almost  as  voluntary,  and  is  considered  pretty 
much  in  the  same  light  as  donations  to  the  neighbouring 
church  or  a  Sunday  school." 

In  Massachusetts,  where  the  law  admits  no  offset  of    /  j  ^ 

debts  against  visible  and  tangible  property,  and  is  regarded  '  ^^^^^^JK, 
as  complete,  and  where  its  execution  is  acknowledged  to  be  ^  JXt 
most  arbitrary  and  inquisitorial — some  towns  publishing 
e'ach  year  every  known  item  of  each  man's  personal  prop- 
erty, even  down  to  the  family  pig  and  a  string  of  sleigh 
bells — the  most  intelligent  officials  admit  that  their  sys- 
tem is  a  comparative  failure ;  and  almost  a  complete  failure 
as  to  reaching  evidences  of  indebtedness,  which,  as  before 
shown,  constitute  in  modern  times  so  large  a  part  of  the 
personal  property  of  every  civilized  community. 

In  the  State  of  New  York,  where  the  letter  of  the  tax 
laws  in  respect  to  the  subjects  of  taxation  is  nearly  the 
same  as  in  Massachusetts  and  Ohio,  but  the  administra- 
tion less  stringent,  and  where  the  aggregate  of  personal 
property  nearly  or  fully  equals  in  value  the  aggregate  of 
real  property,  the  proportion  of  the  former  returned  for 
taxation  is  not  in  excess  of  one  fifth  of  the  total  assessed 
valuation;  while  in  the  great  city  of  New  York,  with  a 


428    THE  THEORY  AND  PRACTICE  OF  TAXATION. 


,^ 


Y/ 


/ 


population  of  over  a  million  and  a  half,  not  one  per  cent  of 
her  citizens  stand  upon  the  books  of  the  assessors  as  pos- 
sessing any  personal  property  subject  to  taxation  other 
than  shares  in  banking  institutions. 

In  Wisconsin  the  State  appears  to  have  drifted  into  the 
same  condition  of  things  as  in  New  York,  and  the  attempt 
to  tax  personal  property  has  been  practically  abandoned, 
except  in  the  small  villages  and  rural  districts.  In  Georgia, 
which  is  reported  to  be  well  served  by  its  taxing  officials, 
its  comptroller  asserts  that  in  respect  to  the  mere  article 
of  merchandise  which  can  be  seen  and  handled,  not  fifty 
per  cent  is  returned  for  taxation,  and  that  in  the  city  of 
Savannah    in    1886    not    ten    watches    were    subjected    to 

taxation.  """""  ^' 

~To  complete  this  record  of  experience  it  is  desirable  to 
add  that  there  is  not  a  single  economist  or  financier  of  note, 
either  in  the  United  States  or  Europe,  who  upholds  the 
"  infinitesimal "  or  "  general  property  "  tax  as  a  desirable 
or  essential  feature  of  any  fiscal  system,  its  characteriza- 
tion by  M.  Leroy-Beaulieu,  the  celebrated  French  econo- 
mist, being  that  "  a  cruder  instrumentality  of  taxation  has 
rarely  been  devised." 

Again,  in  every  country  on  the  globe  where  a  direct 
tax  on  personal  property  in  the  hands  of  individuals  has 
been  laid,  the  system  has  exhibited  the  same  features  of 
badness.  No  experience  in  any  country  has  suggested  any 
practical  improvements  of  it.    It  has  never  been  improved ; 

Zit  has  never  grown  better ;  it  has  always,  under  all  circum- 
stances, exhibited  a  tendency  to  grow  worse,  fit  is  a  fact 
creditable  to  the  superior  intelligence  of  other  lands  that 
1^  '^  it  no  longer  is  found  in  any  civilized  country  on  the  globe, 
the  United  States  alone  excepted;  and  in  this  country  it 
is  no  longer  found  in  Pennsylvania,  New  Jersey,  and 
perhaps  some  other  States. 

Prof.  E.  A.  R.  Seligman,  of  Columbia  University, 
who  has  written  much  on  this  subject,  sums  up  the  result 
of  his  investigations  in  the  following  language :  "  It  will  be 
no  exaggeration  to  say  that  the  general  property  tax  in 
the  United  States  is  a  dismal  failure.  Every  country  also, 
with  the  exception  of  Holland  and  the  States  of  the  Fed- 
eral Union,  has  abandoned  this  system  of  tax  as  something 
wholly  impractical.    In  recent  years  in  both  England  and 


V 


REFORM  IN  TAXATION. 


429 


France  the  necessity  of  raising  increased  revenues  has 
drawn  especial  attention  to  the  subject  of  local  taxation; 
but  in  neither  of  these  two  countries  has  any  prominent 
speaker  or  writer  advocated  the  direct  taxation  of  personal 
property,  or  even  alluded  to  the  subject,  except  to  scout 
the  very  idea  of  such  a  proposition."  * 

And  yet,  notwithstanding  this  record  of  disastrous  and 
discreditable  experience,  and  the  opposition  to  the  almost 
unanimous  judgment  of  all  whose  investigations  warrant 
the  expression  of  opinion,  the  strength  of  popular  prejudice 
in  the  United  States  in  favour  of  the  infinitesimal  system 
of  taxation  is  so  great  as  to  make  the  substitution  of  any 
better  system  a  matter  of  very  great  difficulty,  and  perhaps 
a  present  impossibility.  "  Although  all  Europe,  as  already 
pointed  out,  has  tried  and  discarded  taxation  of  personal 
property,  our  own  people  have  grown  up  under  the  opposite 
system.  Every  State  tries  to  tax  it.  No  American  has 
any  personal  experience  of  a  system  which  does  not  pre- 
tend to  tax  it.  The  proposition  to  dispense  with  such  taxa- 
tion, therefore,  strikes  every  American  as  an  experiment. 
Few  Americans  know  or  care  anything  about  the  experi- 
ence of  other  nations." 

There  is,  however,  at  the  present  time,  some  gratifying 
evidence  of  a  change  in  popular  sentiment  in  favour  of 
radical  tax  reforms.  Thus,  in  October,  1897,  the  grand 
jury  of  the  county  of  New  York  made  a  presentment  on 
the  siibject  of  taxation  under  the  following  circumstances : 
A  complaint  was  made  against  the  tax  officials,  charging 
undervaluations  of  property,  and  therefore  perjury,  but 
the  grand  jury  finds  in  effect  that  the  State  laws  are  of 
such  a  character  that  assessors  are  almost  inevitably  led 
into  blunders,  and  it  recommends  a  general  revision  of 


*  Holland,  by  reason  of  her  immense  national  debt,  the  largest, 
comparatively,  of  any  country,  has  been  obliged  to  maintain  a 
most  vigorous  and  extensive  system  of  taxation  in  order  to  raise 
revenue  sufficient  to  the  wants  and-  requirements  of  the  state.  But 
it  has  been  prominently  brought  out,  in  recent  years,  that  the 
decadence  of  Holland  dates  almost  from  the  hour  when  taxes  were 
imposed  on  manufactories,  commerce,  fishing  industry,  and  moneyed 
capital.  Business  went  elsewhere,  and  with  the  decline  of  business 
the  ability  to  pay  taxes  diminished,  and  the  burden  of  taxation 
augmented.  See  Journal  des  ^ficonomistes,  November,  1871;  also 
Principles  of  Political  Economy,  J.  R.  McCuUoeh,  pp.  470,  471. 


430    THE  THEORY  AND  PRACTICE  OP  TAXATION. 


the  tax  laws  imposing  upon  the  State  the  duty  of  assess- 
ing personal  property,  so  that  local  expenditure  may  be 
paid  by  real-estate  taxes  alone,  and  the  "  question  of  con- 
tinuing or  abolishing  personal  taxes  "  be  "  fought  out  on 
State  lines." 

A  special  tax  commission,  appointed  by  the  Governor  of 
Massachusetts,  and  coniposed  of  men  of  wide  financial  ex- 
perience and  business  ability,  after  careful  study  of  this 
subject,  reported  in  October,  1897,  in  favour  of  the  entire 
exemption  of  personal  property  and  the  substitution  of 
other  agencies  (to  be  hereafter  noticed)  for  the  collection 
of  revenue. 

A  fact  of  historical  interest  which  ought  not  to  be  over- 
."'  looked  in  this  connection  is  that  whenever  a  system  of  in- 
finitesimal taxation  (or  a  general  property  tax)  has  been 
.■^  projected,  its  authors  have  been  led,  as  it  were,  by  instinct 
to  the  conclusion  that  its  execution,  with  any  degree  of 
■  effectiveness,  must  depend  upon  the  employment  of  extraor- 
dinary and  arbitrary  measures.  Thus,  the  old  Romans, 
who  first  notably  established  the  taxation  of  personal  prop- 
erty at  the  periodof  the  decadencfi— oJ  the  empire,  and 
who  were~iaof~Eoubled  with  any  restrictions  of  a  consti- 
tutional character,  or  any  very  nice  notions  about  personal 
liberty  or  general  morality,  clearly  perceived  this,  and  ac- 
cordingly invested  their  tax  officials  with  the  power  of 
administering  torture  as  a  means  of  compelling  informa- 
tion (answering  questions)  and  enforcing  payment;  and 
that  the  tax  officials  were  not  backward  in  using  the  power 
with  which  they  were  invested  is  proved  by  a  variety  of 
evidence. 

Thus,  Zosimus,  who  wrote  in  the  fifth  century  a.  d., 
states  that  the  period  of  the  tax  collection  upon  general 
industry  "  was  announced  by  the  tears  and  terrors  of  the 
citizens,  who  were  often  compelled  by  the  impending 
scourge  "  to  meet  their  obligations ;  and  Gibbon,  in  treat- 
ing of  this  feature  of  Roman  history,  in  a  measure  justi- 
fies the  proceeding  in  the  following  language :  "  The  secret 
wealth  of  commerce  and  the  precarious  profits  of  art  and 
labour  are  susceptible  only  of  a  discretionary  valuation ; 
and  as  the  person  of  the  trader  supplies  the  want  of  a 
visible  and  permanent  security,  the  payment  of  the  im- 
position, which,  in  the  case  of  a  land  tax,  may  be  obtained 


\ 


\^^ 


\^^ 


VaaX/^  Sf^  '  ^^ 


AWYVvt/ 


-VVi 


,f 


DOOMING   IN  MASSACHUSETTS. 


431 


by  the  seizure  of  property,  can  rarely  be  extorted  by  any 
other  means  than  those  of  corporal  punishment." 

And  it  is  also  especially  worthy  to  note  that  in  every 
instance  in  which  attempts  have  been  made  of  late  in  the 
United  States  to  remedy  the  recognised  imperfections  and 
inequalities  of  existing  systems  of  local  taxation,  the  per- 
sons intrusted  with  the  duty,  possibly  without  knowing, 
and  probably  without  caring,  what  were  the  experience  and 
custom  of  the  old  Romans,  have  been  led  by  their  instincts 
and  intuitions  to  go  as  far  in  the  torture  direction  for 
the  obtaining  of  taxes  on  personal  property  as  the  con- 
ditions of  our  modern  civilization  and  the  state  of  public 
opinion  would  allow. 

The'  most  curious  and  confirmatory  evidence  of  this 
is  to  be  found  in  a  method  of  procedure  adopted  in  the 
city  of  Boston,  Massachusetts — a  method  which  has  no 
parallel  except  in  the  records  of  the  middle  ages  and  of 
the  Inquisition,  and  constitutes  in  itself  a  satire  upon  any 
claim  to  the  enjoyment  of  a  wholly  free  and  enlightened 
government.  For  failing  to  obtain  satisfactory  information 
about  the  private  affairs  of  any  individual  the  chief  assess- 
ors and  their  subordinates  in  that  city,  to  the  number  of 
some  fifty,  meet  in  secret  session  in  a  large  upper  chamber 
set  aside  for  the  purpose,  and  appropriately  termed  the 
"  dooming  chamber,"  when  the  citizen  in  question,  without 
being  present  either  by  counsel  or  in  person,  is  arbitrarily 
doomed  to  the  payment  of  any  sum  which  a  majority  of 
those  present  may  think  proper,  and  from  which  "  doom- 
ing "  there  can  be  no  appeal. 

The  following  record  of  the  actual  working  of  this 
system  may  be  thus  illustrated :  During  the  year  1889  the 
whole  amount  of  taxable  personal  property  which  the  as- 
sessors of  Boston  were  able  to  discover,  exclusive  of  bank 
stock,  was  $39,000,000,  of  which  amount  $14,570,000,  or 
thirty-seven  and  a  half  per  cent,  was  returned  as  visible, 
and  $27,650,000  as  invisible.  Being  dissatisfied  with  this 
result,  which  was  all  that  was  justified  by  any  facts  which 
the  assessors  could  state,  they  proceeded  to  multiply  it  four 
and  a  half  times  by  a  mere  guess.  In  their  "  dooming  " 
chamber  they  guessed  that  personal  propertv,  other  than 
bank  stock,  ought  to  be  valued  at  $186,000,000;  and  the 
citizens  of  Boston  were  compelled  to  pay  taxes  upon  that 


X 


432    THE  THEORY  AND   PRACTICE   OF  TAXATION. 

amount.  Could  anything  be  more  monstrous  or  absurd 
than  a  system  of  taxation  which,  even  when  administered 
by  phenomenally  honest  and  competent  men,  produces 
such  results? 

The  Use  and  Value  of  Oaths  as  an  Adjunct  of 
Taxation. — Consideration  is  properly  asked  in  this  con- 
nection to  the  use  and  value  of  oaths,  an  increase  in  the 
number  and  stringency  of  which  is  often  regarded  as  essen- 
tial to  effective  and  equal  taxation.  It  is  the  all  but  unani- 
mous opinion  of  officials  who  of  late  have  had  extensive 
experience  in  the  administration  of  both  the  national  and 
State  revenue  laws  that  oaths  as  a  matter  of  restraint,  or 
as  a  guarantee  of  truth  in  respect  to  official  statements, 
have  in  a  great  measure  ceased  to  be  effectual ;  or,  in  other 
words,  that  perjury,  direct  or  constructive,  has  become  so 
common  as  to  almost  cease  to  occasion  notice.  In  fact, 
there  has  come  to  be  a  feeling  in  the  community  that  an 
oath  in  respect  to  matters  in  which  the  Government  is  a 
party  is  a  mere  matter  of  form,  of  mechanical  procedure, 
and  that  its  violation,  especially  with  a  mental  reservation, 
and  when  the  interest  of  other  individuals  is  not  spe- 
cifically affected,  does  not  in  itself  constitute  a  crime.  The 
fact  that  the  assessors  of  almost  every  State  every  year 
make  oath  that  they  have  valued  all  property  at  its  actual 
value,  when  they  know  they  have  not,  constitutes  one  proof 
of  the  truth  of  this  assertion.  The  everyday  entry  of  goods 
at  the  customhouse  at  undervaluation  constitutes  another; 
the  enormous  frauds  committed  in  recent  years  under  the 
internal  revenue  laws  of  the  United  States,  which  in  the 
case  of  distilled  spirits  entailed  a  loss  in  a  single  year  of 
over  $130,000,000,  and  in  which  the  taking  of  false  oaths 
was  at  every  step  an  essential  feature,  constitutes  a  third ; 
while  of  individual  examples,  which  every  assessor  of  ex- 
perience can  detail,  the  record  would  be  almost  inter- 
minable. 

During  the  past  few  years  the  low  tone  of  commercial 
morality  in  the  I'^nited  States  has  been  a  fact  generally 
recognised  and  much  commented  upon ;  but  it  has  not,  that 
we  are  aware,  been  made  a  subject  of  inquiry  by  those 
to  whom  the  guardianship  of  public  morals  is  particularly 
intrusted.  How  far  the  existing  system  of  laws  relating 
to   taxation — national    and    State — are   justly   chargeable 


DODaERS  OF  TAXATION. 


433 


with  the  results  to  which  reference  has  been  made,  or  how 
much  in  the  division  of  responsibility  is  to  be  set  down  to 
the  account  of  those  who  violate  the  law,  and  how  much 
to  those  who,  forewarned  of  the  weakness  of  human  nature, 
deliberately  make  laws  which  especially  lead  men  into 
temptation,  are  yet  unsettled  questions. 

A  point  of  great  interest  and  importance  in  this  connec- 
tion, though  often  overloked,  is  that  even  if  all  the  States 
of  the  Federal  Union  should  entirely  exempt  personal  prop- 
erty within  their  territory  and  jurisdiction  from  taxa- 
tion, it  would  nevertheless,  owing  to  the  dual  nature  of  the 
Government  of  the  United  States,  be  subject  to  a  large 
measure  of  heavy  and  disproportionate  taxation.  Thus, 
the  expenditure  of  the  Federal  Government,  which  repre- 
sents taxation,  was  in  1896,  including  the  cost  of  revenue 
collection,  in  excess  of  $445,000,000,  not  one  cent  of  which 
was  derived  from  taxes  on  real  estate.*  The  aggregate  of 
annual  taxation  by  States,  counties,  cities,  municipalities, 
and  the  District  of  Columbia  for  the  same  year  is  esti- 
mated by  reputable  authorities  to  have  been  about  $400,- 
000,000,  of  which  at  least  one  fifth  was  assessed  or  was  col- 
lected from  personal  property.  If  real  estate  paid  all  th 
State  taxes,  personal  property  therefore  would  still  be 
paying  all  the  United  States  Government  taxes,  or  a  large 
excess  of  its  equitable  share  of  any  or  all  national  taxation 

^A  claim  that  any  personal  property  owner  is  justified  in 
protecting  himself  against  such  extortion  in  any  and  every 

^  legal  way  has  much,  therefore,  to  be  said  in  its  favour. 
When  such  protection  can  not  be  effected  legally,  he  has 
only  to  leave  the  State  for  others  that  are  not  extortionate 
oppressors  of  capital.  But  who  can  not  perceive  on  re- 
flection that  personal  property  (capital)  must  be  largely 
used  by  its  owners  and  at  fair  rates  at  their  residence; 
and  that  the  home  of  such  capital  will  show  the  benefit  in 
increased  local  business,  increased  population,  and  in 
creased  value  of  real  estate  by  its  use?  Why,  then,  so 
much  overrighteous  talk  of  personal  property  owners  dodg 
ing  taxation? 

Logical  and  ingenious  as  have  been  the  arguments  in 
opposition   to   the   legal   exemption   of   personal   property 


Real  estate  pays  no  Federal  Government  tax. 


434    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

from  taxation,  the  citation  and  consideration  of  the  un- 
disputed experience  of  all  countries,  people,  and  ages  are 
all  that  is  necessary  to  refute  and  disprove  them.     There 
was  a  time  when  nearly  all  men  believed  and  taught  that 
the  world  was  fiat,  and  when  the  few  who  lisped  to  the 
contrary  exposed  themselves  to  a  charge  of  religious  heresy 
and   punishment.    But   a   comparatively   short   navigation 
experience  effectually  put  an  end  to  all  controversy  on  this 
subject ;  and  it  is  doubtless  only  a  question  of  time  when 
II.  personal  property  will  be  exempt  from  governmental  taxa- 
^   tion,  because  no  system  has  ever  been  devised,  .£ir. is  likely 
^  to  be,  whTcli  will  enable  a  state  to  tax  it  with  any  approach 
totihiformity  and  equity. 

Origin  and  History  of  the  General  Property  Tax. 
— The  idea  that  in  order  to  tax  equitably  it  is  necessary 
to  assess  everything  capable  of  resulting  in  the  obtain- 
ing of  revenue  is  not  original  with  the  American  people. 
Its  inception  dates  back  to  the  dawn  of  civilization,  and 
its  development  may  be  regarded  as  in  the  nati;re  of  an 
economic  evolution.  In  the  incipient  stages  of  society, 
as  already  pointed  out,  property  consisted  exclusively  of 
things  tangible  and  visible — lands,  buildings,  cattle,  slaves, 
agricultural  products,  household  effects,  and  implements — 
and  what  was  exacted  by  rulers  or  chiefs  of  their  subjects 
was  arbitrary  proportions  of  such  kinds  of  property  or 
of  personal  service,  and  was  not  in  any  proper  sense  taxa- 
tion, but  tribute.  For  thousands  of  years  there  were  no 
credits  or  material  evidences  of  indebtedness,  as  there  are 
none  at  the  present  time  among  barbarians  or  half-civil- 
ized people;  for  a  knowledge  of  letters,  of  the  art  of 
writing,  and  a  somewhat  durable  and  portable  material 
to  write  upon  were  essential  prerequisites  for  their  exist- 
ence, the  earliest  evidence  of  the  recognition  of  anything 
like  a  mortgage  being  the  inscriptions  on  certain  clay  tab- 
lets excavated  from  the  ruins  of  the  ancient  cities  of  Baby- 
lon and  Assyria,  which  were  evidently  the  highest  results 
of  long  and  slowly  developing  civilization.  In  fact,  in  the 
early  stages  of  society  there  was  no  important  form  of 
capital  other  than  landed  property  and  the  instrumentali- 
ties, including  slaves,  for  its  cultivation,  and  so  far  as  the 
system  for  obtaining  revenue  for  the  rulers  or  state  merited 
the  name  of  taxation,  it  was  practically  a  "  land  "  tax. 


ORIGIN  AND  HISTORY.  435 

As  civilization  advanced,  slavery  gradually  broke  down ; 
trade  or  trattic  between  individuals  or  adjacent  communi- 
ties extended  and  became  commerce ;  free  labour  appeared ; 
capital  developed  and  multiplied  the  forms  of  visible,  tan- 
gible property.  Then  the  system  of  obtaining  revenue  began 
to  have  the  characteristics  of  a  general  property  tax;  and 
as  the  coincidence  of  great  value  with  small  bulk  in  some 
forms  of  tangible,  visible  property  favoured  concealment, 
some  methods  of  obtaining  revenue  from  property  other 
than  mere  inspection  became  necessary,  and  were  obtained 
by  the  Eomans  in  the  latter  days  of  their  empire  by  en- 
dowing their  assessors  and  taxgatherers  (as  before  shown) 
with  the  power  to  administer  torture  to  unwilling  tax- 
payers, a  method  that  was  followed  and  perpetuated  until 
within  a  very  recent  period  by  the  rulers  of  most  Asiatic 
countries;  and  in  later  days,  when  credits  came  into  exist- 
ence and  extensive  use,  and  titles  to  property  and  evidences 
of  indebtedness  were  regarded  as  property,  although  in- 
tangible and  invisible,  a  method  for  discovering  and  assess- 
ing the  same,  as  approximate  to  actual  torture  as  a  higher 
civilization  would  sanction,  was  everywhere  adopted. 

And   how   such   methods   continue  to   exist   and   their 
practice  be  regarded  with  favour  in  states  and  communities 
claiming  to  be  in  the  highest  degree  civilized  and  enlight- 
ened, finds  proof  and  illustration  in  the  following  circum- 
stance:   In  187 A  the  Legislature  of  Massachusetts  created    > 
a  commission  of  three  persons  to  inquire  into  the  expedi-  /I 
ency  of  amending  the  laws  of  that  State  in  respect  to  taxa-      ^^r> 
tion,  and  placed  at  its  head  the  chairman  of  the  Board  lA 

of  Assessors  of  the  city  of  Boston,  a  gentleman  long  identi-  rQ 

tied  with,  if  not  the  originator  of,  the  idea  of  making  an  ^^ 

arbitrary,  irresponsible  "  dooming  chamber  "  an  essential 
feature  of  tax  administration.  At  the  outset  this  com- 
mission was  evidently  impressed  with  the  necessity  of 
vindicating  the  "infinitesimal"  or  "general  property" 
tax  system,  then  and  at  the  present  time  especially  favoured 
and  fully  exemplified  in  their  State.  And  they  set  about 
it  in  the  following  manner :  with  the  Declaration  of  In- 
dependence before  them,  maintaining  it  to  be  in  the  nature 
of  a  self-evident  truth  that  "  all  men  are  endowed  by  their 
Creator  with  certain  inalienable  rights,"  and  "  that  among 
these  are  life,  liberty,  and  the  pursuit  of  happiness,"  the 


f     436 


THE  THEORY  AND  PRACTICE  OF  TAXATION. 


^ 


commission  gravely  announced  that  "  the  individual  per- 
son" (in  Massachusetts)  '^  has  no  individual  rights  except 
that  to  his  own  righteousness,"  thus  laying  a  sure  founda- 
tion in  justification  for  a  recurrence  in  Massachusetts  to 
the  torture  tax  system  of  the  ancient  Romans  if  its  tax 
administrators  should  consider  it  expedient. 

After  the  dissolution  of  the  Roman  Empire  and  the 
subsequent  reconstruction,  as  it  were,  of  government  and 
society  in  Europe  during  the  early  feudal  period,  and 
when  land  was  practically  the  only  form  of  wealth,  the 
payments  exacted  for  the  support  of  the  governing  powers 
— "kings,  barons,  knights,  etc. — were  essentially  and  almost 
exclusively  in  the  nature  of  land  taxes;  and  the  terms 
"  danegeld,"  a  charge  on  lands  at  so  much  per  hide,  or  an 
area  of  about  one  hundred  acres;  "  scutage"  a  charge  on 
tenants  in  lieu  of  military  service;  "  carucage,"  a  charge 
on  "plough  lands";  "  tqlUage"  (from  the  French  tniller, 
to  cut  off),  a  charge  on  the  tenants  of  royal  manors,  and 
the  like  were  designations  of  the  different  forms  of  such 
assessments  at  different  periods.  As  civilization  advanced 
and  was  accompanied,  as  at  a  more  primitive  period,  with 
an  increase  in  the  forms  of  personal  property,  a  combina- 
tion of  taxes  on  land  and  movables,  or  a  general  property 
tax  system,  developed  and  was  adopted  by  all  the  nations 
of  western  Europe  with  all  the  despotic  adjuncts  which 
seemed  necessary  to  make  its  enforcement  successful.  The 
ultimate  result  of  such  a  system  was  what  might  have  been 
anticipated.  From  a  very  early  period  it  occasioned  great 
popular  dissatisfaction.  In  Milan,  Italy,  as  early  as  1308, 
it  was  enforced  with  such  severity  "  that  the  assessment 
book  was  known  as  the  libra  del  dolore."  In  Florence  it 
became  so  honeycombed  with  abuses  and  the  load  of  taxa- 
tion fell  with  such  crushing  force  on  the  small  owners  of 
property  that  imminent  popular  revolution  and  disorder 
compelled  its  essential  modification.  As  wealth  increased, 
evasions  of  the  tax  increased  in  a  greater  proportion  in 
every  community,  leaving  the  burden  of  the  system,  as  now 
in  the  United  States,  on  that  class  of  the  population — 
mainly  the  agricultural — that  are  least  able  to  bear  it.  Sir 
Robert  Cecil  stated  in  1592  that  there  were  not  five  men 
in  London  assessed  on  their  goods  at  two  hundred  pounds 
(one  thousand  dollars) ;  and  Sir  Walter  Raleigh  stated 


ABOLISHED   IN   EUROPE.  437 

in  1601  that  "the  poor  man"  (in  England)  "pays  as 
much  as  the  rich."  In  Florence  in  1495  only  fifty-two 
persons  paid  the  tax  on  trade  capital,  although  the  amount 
of  such  capital  must  have  been  immense.  Marshal  Vauban, 
of  France,  who  wrote  on  taxation  about  1700,  stated  that  the 
faille  personnelle  was  assessed  only  on  the  poorest  classes. 
The  result  has  been  that  as  the  difficulty  of  assessing  visible 
personal  property  and  the  impossibility  of  reaching  invisi- 
ble and  intangible  personalty  became  apparent,  the  tax  was 
gradually  modified,  and  finally  abolished  in  all  European 
countries,  except  possibly  Switzerland  and  Holland,  where 
its  nature  has  very  little  of  its  original  and  typical  char- 
acter. One  of  the  first  acts  of  the  French  National  Assem- 
bly in  1789  was  to  abolish  it  entirely.  A  provision  for 
taxing  personal  property  under  a  nominal  land  tax  con- 
tinued to  exist  on  the  statute  book  until  1833,  when, 
through  constant  exemptions  and  systematic  evasions,  the 
annual  revenue  accruing  from  the  same  had  run  down  to 
the  sum  of  eight  hundred  and  twenty-three  pounds  (four 
thousand  one  hundred  and  fifteen  dollars).  It  is  also 
interesting  to  note  that  the  people  of  Europe  have  been 
so  long  exempted  from  a  general  property  tax  that  their 
leading  writers  on  economic  or  fiscal  subjects  rarely  discuss 
it  or  even  seem  to  have  any  knowledge  of  its  characteristics 
or  historical  experience.*  ^^ 

'' "  The  United  States  is  the  only  civilized  country  that       .  ' q 
'gives  no  heed  to  the  world's  uniform  record  of  experience, 
and  thinks  it  desirable  to  tax  both  property  itself  and  its 
shadow. 

*  To  those  desirous  of  a  fuller  record  of  the  historical  experi- 
ence of  the  general  property  tax  than  has  been  here  given,  refer- 
ence is  made  to  an  exceedingly  interesting  and  valuable  essay  on 
the  subject  by  Prof.  E.  R.  A.  Seligman,  of  Columbia  University, 
published  in  Essays  on  Taxation,  New  York,  1895. 


i 


^ 


CHAPTER  XX. 

DOUBLE   TAXATION. 

One  of  the  inevitable  characteristics  of  a  "  general 
property  tax "  is  the  opportunity  afforded  for  inflicting 
double  taxation — i.e.,  taxation  at  one  and  the  same  time  on 
the  same  person  or  property,  or  taxation  of  the  same  prop- 
erty a  second  time  in  the  same  year — an  opportunity  which 
the  believers  in  this  system  vigorously  defend,  and  its  ad- 
ministrators as  a  rule  gladly  take  advantage  of  to  prac- 
tically enforce.  These  opportunities  exist  mainly  through 
two  assumptions,  neither  of  which  is  warranted  by  either 
reason  or  justice,  and  is  alike  antagonistic  to  any  equitable 
and  intelligent  system  of  taxation :  the  first,  in  respect  to 
the  situs  of  personal  property,  and  the  second,  as  to  origin 
and  nature  of  property ;  and  to  these,  in  the  above  order, 
attention  is  next  invited. 

Personal  property  for  purposes  of  taxation  is  popularly 
divided  into  two  classes — namely,  things  movable,  tangible, 
and  visible,  and  things  wanting  in  corporality  or  bodily 
presence,  and  therefore,  as  a  rule,  intangible  and  invisible. 
To  the  former  has  been  given  the  general  name  of  "  chat- 
tels," and  to  the  latter  that  of  "  credits  " ;  under  which 
latter  name  or  title  are  included  not  only  book  accounts, 
bills  payable,  promissory  notes,  bonds,  mortgages,  deeds, 
bank  deposits,  certificates  of  indebtedness,  and  the  like, 
but  also  shares  of  corporate  stock,  and  possibly  shares  in 
any  partnership.  Adopting  a  popular  theory,  that  credits 
are  property,  their  aggregate  value  in  all  civilized  countries 
can  not,  probably,  be  reasonably  estimated  at  less  than  one 
half  of  the  aggregate  value  of  all  chattels  and  real  estate. 

Situs  of  Personal  Property. — As  has  been  already 
pointed  out,  it  is  in  the  nature  of  an  economic  axiom  and 
a  fundamental  legal  principle  that  the  power  of  every  state 
438 


SITUS  OP   PERSONAL  PROPERTY. 


439 


to  tax  must  be  exclusively  limited  to  subjects  within  its 
territory  and  legal  jurisdiction.    This  economic  axiom  and 
legal  principle  is  recognised  in  nearly  all  countries  claim- 
ing to  be  civilized ;  the  principal  exceptions  being  in  the 
States  of  the  Federal  Union,  where  it  is  violated  in  respect 
to  both  theory  and  practice — more  especially  in  the  State 
of  Massachusetts,  the  statutes  of  which  define  personal 
estate  for  purposes  of  taxation  so  as  to  include  "  goods, 
chattels,   money,    and   effects,    wherever   they    are;    ships, 
public  stocks  and  securities,  stocks  in  turnpikes,  bridges, 
and  moneyed  corporations,  within  or  witJiout  the  State." 
Thus,  for  example,  if  a  resident  of  Massachusetts  owns  a 
cow  which  is  bodily  in  another  State,  that  cow  is  properly 
taxed  in  the  State  where  the  animal  is;  but  Massachusetts, p<i*M" 
in  virtue  of  the  residence  of  the  owner  within  her  territory,!'^ 
imposes  upon  him  a  second  tax  for  the  same  cow.     Again, >  >-     s 
owners  of  shares  in  corporations  chartered  and  located  inr   ^ 
Massachusetts  are  taxed  through  the  corporation,  and  their*^  ^ 
shares  are  free   from  any  further  taxation.     But  if  the^  ^ 
same  persons  are  shareholders  in  corporations  created  and,_^" 
established  by  other  States,  and  the  real  and  personal  prop-C^* 
erty  of  which  are  fully  taxed  where  situated,  they  are^  " 
subject  to  a  second  tax  in  Massachusetts  on  the  assumed  ^ 
local  value  of  the  interest  of  their  citizens  in  such  extra- 
territorial  corporations. 

Under  this  system,  moreover,  the  same  property  may     ^^=5"" 
be,  and  often  actually  is,  subjected  to  not  merely  double     \     ^^^ 
but  triple  taxation,  which  sometimes  practically  amounts     ^  v^ 
to  confiscation.     Thus  personal   property  belonging  to  a*^     v 
citizen  of  Massachusetts,   but  located  in   Chicago,  would.,;^/'^^  2 
be  properly  taxable  there,  because  within  the  territory  and      J    t 
under  the  protection  of  the  taxing  power.     It  would,  how- 
ever, be  taxable  to  the  owner  in  Massachusetts  because  of 
his  personal  residence  in  that  State ;  and  the  owner  would 
also  be  liable  to  taxation  in  Massachusetts  by  reason  of  his 
income  from  the  same  property.     The  following  case  of 
actual  and  comparatively  recent  experience  constitutes  both 
proof  and  illustration  of  the  accuracy  of  this  statement: 
A  lady  of  a  Western  State,  for  the  sake  of  availing  her- 
self of  certain  educational  advantages,  removed  to  a  town 
in  Massachusetts  near  Boston,  and  benefited  the  town  by 
building  a  fine  residence  therein.    Her  property,  which  was 


^ 


r 

r 

I 


440    THE  THEORY  AND  PRACTICE  OF  TAXATION. 


held  by  a  trustee  in  Indiana,  was  taxed  to  him  by  reason 
of  his  legal  holding  in  that  State.  The  property  itself, 
mainly  in  another  State,  was  taxed  there,  and  properly, 
by  reason  of  its  location;  but  at  the  end  of  her  first  year's 
residence  the  lady  was  horrified  to  learn  that  a  third  tax 
on  her  income  was  demanded  of  her  by  the  tax  laws  of 
Massachusetts.  "  And  this,"  the  person  communicating 
these  facts  adds,  "  will,  if  enforced,  be  a  decree  of  my  per- 
sonal banishment  from  the  State  as  effectual  as  that  which 
the  State  formerly  launched  against  Eoger  Williams  and 
the  Quakers."  Can  any  one  doubt  that  human  nature, 
as  ordinarily  constituted,  will  protest  against,  and  success- 
fully evade  such  lawsFJ  Would  it  not  be  well  in  discussing 
this  subject  to  mention  also  that  it  was  a  question  of  taxa- 
tion that  gave  liberty  to  the  American  colonies,  and  that 
the  principle  that  the  people  of  Boston  and  their  ministers 
once  mainly  relied  upon  to  justify  their  destruction  of  im- 
ported tea,  which  they  regarded  as  unjustly  taxed  by  even 
a  small  amount,  was  "  that  resistance  to  tyranny  was  obedi- 
ence to  God  "  ? 

The  claim  or  argument,  however,  with  the  advocates 
of  such  an  unjust  system  now  set  up  in  its  defence  is  not 
a  theological  one,  but  that  personal  property  (more  espe- 
cially what  is  termed  in  law  choses  in  action,  or  credits, 
titles,  notes,  bonds,  mortgages,  which  are  in  their  nature 
incorporeal,  and  therefore  invisible  and  intangible)  has  no 
sihts  away  from  the  person  or  residence  of  the  owner,  but  is 
deemed  to  be  present  with  him  at  the  place  of  his  domicile. 

This  rule  or  fiction  of  law  originated,  according  to 
Savigny,  in  Eome,  and  acquired  the  designation  of  "  mohilia 
'personam  seqnuntur" ;  but  its  applicability  to  property  was 
never  held  to  extend  beyond  Eoman  territory.  Subsequent- 
ly it  became  a  device  of  international  comity,  which  the 
Supreme  Court  of  Vermont  (Catlin  vs.  Hall,  12  Vermont, 
152)  has  declared  was  subsequently  "adopted  from  con- 
siderations of  general  convenience  and  policy,  and  for  the 
benefit  of  commerce  "  ;  and  which,  according  to  every  prin- 
ciple of  common  sense  and  equity,  was  never  invented 
with  a  view  of  its  being  used  as  a  rule  to  govern  and  define 
the  application  and  scope  of  taxation,  or  was  intended  to 
have  any  other  meaning  than  that  for  the  purpose  of  the 
sale,  distribution,  and  other  disposition  of  property  any 


TANGIBLE  PROPERTY  TAXED.  441 

act,  agreement,  or  authority  which  is  sufficient  in  law  where 
the  owner  resides  shall  pass  the  property  in  the  place  where 
the  property  is;  and  more  especially  to  facilitate  the  dis- 
tribution of  decedents'  estates,  by  enabling  parties  to  dis- 
pose of  their  property  without  embarrassment  from  their 
ignorance  of  the  laws  of  the  country  where  it  is  situated.* 

How  comparatively  recent,  moreover,  has  been  the 
extra-territorial  application  of  the  rule  or  principle  under 
consideration  to  taxation,  is  shown  by  the  fact  that  the  first 
English  colonists  and  lawmakers  who  came  to  America  do 
not  appear  to  have  brought  with  them  any  of  the  narrow 
and  illogical  views  which  have  characterized  their  descend- 
ants. Thus,  for  example,  one  of  the  earliest  laws  of  the 
Massachusetts  colony  reads  as  follows :  "  No  man  shall  he 
rated  here  (Massachusetts)  for  any  estate  or  revenue  he 
hath  in  England,  or  in  any  forreine  partes,  till  it  he  trans- 
ported thither."  {Massachusetts  Historical  Society  Collec- 
tions, vols,  vii  and  viii,  page  213.)  And  in  the  first  pro- 
vincial codes  of  Pennsylvania  especial  care  was  taken  to 
confine  taxation  to  land,  and  a  very  few  articles  of  per- 
sonal property  of  a  visible  character,  as  slaves,  horses,  and 
cattle,  and  to  exempt  from  taxation  debts,  accounts,  mer- 
chandise,! and  all  other  items  susceptible  of  concealment. 


* "  No  fiction,"  says  Blackstone,  "  shall  extend  to  work  an 
injury;  its  proper  operation  being  to  prevent  a  mischief,  or  remedy 
an  inconvenience,  which  might  result  from  the  general  rule  of 
law."  At  any  attempt  to  misapply  a  fiction,  it  falls  within,  and 
is  terminated  by,  that  other  authoritative  maxim  of  logic  and  the 
common  law,  cessante  ratione  Icc/is,  cessat  ipsa  lex.  Another  great 
authority  in  law,  Lord  Mansfield,  says:  "  Fictions  of  law  hold  only 
in  respect  of  the  ends  and  purposes  for  which  they  were  invented; 
when  they  are  urged  to  an  intent  and  purpose  not  within  the 
reason  and  policy  of  the  fiction,  the  other  party  may  show  the 
truth." 

t  In  a  report  of  the  law  committee  of  the  Common  Council  of 
the  city  of  Philadelphia,  submitted  February  16,  1871,  we  find  the 
following  historical  review  of  the  tax  laws  of  Philadelphia,  under 
the  government  of  William  Penn  and  his  successors  in  the  colonial 
government : 

"These  laws  were  framed  to  avoid  repeating  errors  (in  re- 
spect to  the  taxation  of  personal  property)  which  had  been  proved 
by  long  experience  in  Great  Britain  and  the  Continental  countries 
to  be  inquisitorial  in  their  nature,  and  by  concealment,  evasion, 
and  perjurv  demoralizing  to  the  people.  We  find  the  Provincial 
Council  (1683)  first  determining  that  'a  publick  tax  on  land  ought 
29 


442    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

and  which  would  necessitate  inquisitorial  methods  for  as- 
sessment. And  it  was  not  until  1844,  when  the  State  had 
become  financially  embarrassed  by  large  expenditures,  that 
any  change  was  made  in  such  system.  But  in  later  days, 
when  laws  came  to  be  made  by  legislators  who  could  not 
conceive  that  anything  more  was  involved  in  taxation  than 
the  raising  of  a  given  amount  of  money,  the  discriminating 
rule  in  respect  to  the  situs  of  real  and  personal  property 
was  generally  adopted  and  has  resulted  in  the  before-men- 


to  be  raised  to  defray  the  publick  charge,'  and  the  enactment  of 
1700,  fixing  county  rates  and  levies  (whicli  law  was  not  enrolled), 
is  believed  to  have  been  not  larger  in  the  subjects  of  county  rates 
than  in  the  act  of  1724,  which  were  real  estate,  horses,  cattle,  sheep, 
negroes,  and  a  poll  tax.  It  will  be  noticed  that  the  personal  estate 
here  enumerated  was  visible  property  not  susceptible  of  conceal- 
ment, and  that  debts,  accounts,  merchandise,  and  ships  are  no- 
where mentioned.  In  the  several  enactments  that  followed  in 
1795,  1799,  and  1834,  the  subjects  of  county  levy  were  substantially 
the  same,  sheep  and  slaves  being  omitted  in  the  last  act,  and  officers 
added  to  the  last  two,  and  it  was  not  until  1844,  a  period  when 
the  State,  by  large  expenditures,  had  become  embarrassed,  that, 
by  the  act  of  29th  day  of  April,  1844,  mortgages,  money  owing 
by  solvent  debtors,  stocks,  household  furniture,  public  loans, 
watches,  etc.,  were  made  taxable  for  county  purposes.  The  at- 
tempted enforcement  of  this  act  was  so  injurious  to  the  people, 
by  driving  capital  and  industrial  establishments  from  the  State, 
and  so  evaded  in  returns,  that  by  common  consent  the  law  re- 
mained on  the  statute  book  a  dead  letter  until  the  consolidation 
of  the  city. 

"At  that  time  (1854)  the  question  was  again  discussed,  and 
although  the  councils  of  the  city  had  the  power  to  impose  the 
tax  rate  upon  all  the  subjects  of  taxation,  in  the  thirty-second 
section  of  the  act  of  1844  we  find,  by  the  first  ordinances,  they 
limited  the  levy  to  real  estate,  furniture,  horses,  cattle,  and  pleas- 
ure carriages,  and  so  continued  until  1864,  when  an  act  was  passed 
empowering  the  city  to  levy  taxes  on  all  the  subjects  of  taxation 
contained  in  that  section  of  the  act  of  1844,  a  power  which  they 
possessed  before,  but  had  not  exercised. 

"  Since  that  time  the  authority  of  the  city  to  levy  a  tax  on 
mortgages,  stocks  of  Pennsylvania  corporations,  and  occupations, 
has  been  repealed.  In  considering  the  enlargement  of  the  subjects 
of  levy  in  this  city,  the  fact  must  not  be  lost  sight  of  that  the 
State  does  not  impose  any  tax  on  real  estate  for  vState  purposes, 
but  derives  all  its  revenue  from  corporation  stocks  and  loans,  mer- 
cantile license,  tavern  licenses,  collateral  inheritance,  etc.,  and  it  is 
estimated  that  of  the  gross  receipts  for  1870  ($6,336,603)  more  than 
two  fifths  of  the  amount  ($2,600,000)  was  derived  from  the  prop- 
erty and  business  interests  of  the  citizens  of  this  city." 


ARBITRARY  TAKING.  443 

tioned  absurdities.  Another  involved  absurdity  is  that 
those  States  which  adopt  in  their  systems  of  taxation  the 
rule  of  taxing  property  beyond  their  sovereignty  or  terri- 
torial jurisdiction,  by  reason  of  the  possession  of  its  owner, 
do  not  follow  to  a  logical  conclusion  the  principle  they  have'' 
adopted;  for  they  do  not  hold  that  real  estate,  as  well  as 
personal  property,  follows  the  domicile  of  its  owner  for 
taxation.  But  for  this  distinction  no  good  reasons  can  be 
given,  although  pretexts,  claiming  to  be  reasons,  may.  One 
claim,  however,  is  obviously  as  good  as  another.  A  robber 
who  should  draw  romantic  distinctions  between  watches 
and  purses  would  fail  in  business.  If  we  are  to  be  robbers 
in  practice,  let  us,  at  least,  secure  some  grace  by  honesty 
in  our  professions,  and  admit  that  what  we  thus  take  is 
not  a  tax  received  as  the  just  recompense  of  a  benefit  con- 
ferred, but  a  compulsory  levy,  having  its  cause  in  our  greed 
and  its  justification  in  our  power;  and  as  these  reasons  are 
as  good  for  a  large  levy  as  a  small  one,  and  the  whole  of 
a  man's  estate  is  greater  than  its  part,  why  not  take  the 
whole?  Still  further,  if  it  is  right  to  tax  a  man  in  Massa- 
chusetts, who  has  come  for  a  lengthened  stay  from  another  a 
State  or  a  foreign  country,  for  the  property  he  has  left  |[ 
behind,  why  not  the  man  who  has  come  for  a  week  ?     If  '    Jv . 

we  are  to   do  business  upon  the  principle  that   "  might  -OuV  r  Q^'V'-yM 
makes  right,"  would  it  not  be  a  brilliant  stroke  to  station 
ourselves  It  all  the  avenues  of  ingress  to  a  State,  and  cry 
"  Stand  and  deliver  !  "  to  the  passengers  ?    From  the  above    j^^^  c-«uW 
citations  and  arguments,  the  conclusion  would  seem  to  be         /j 
inevitable  that  when  a  State  assesses  property  situated  be- 
yond  its  territory  and  jurisdiction,  and  which  its  laws  and 
processes  are  not  competent  or  able  to  either  reach  or  pro- 
tect, or  assesses  one  of  its  own  citizens  in  respect  to  such 
property,  the  act  has  no  claim  to  be  regarded  as  taxation, 
but  is  simply  arbitrary  taMng,  in  no  respect  different  in 
principle  from  confiscation. 

It  will  also  be  interesting  here  to  recall  some  of  the 
antecedents  of  this  fiction  of  law,  that  personal  property, 
irrespective  of  its  situs,  follows  the  owner  for  the  purpose 
of  taxation.  Its  prototype  was  the  ancient  taille,  or  tax  of 
servitude,  imposed  on  persons  originally  bondmen,  or  on 
all  persons  who  held  in  farm,  or  lease,  or  resided  on  lands 
of  the  suzerain,  and  from  which  proprietors  or  suzerains 


^^ 


444    THE  THEORY  AND   PRACTICE  OF  TAXATION. 

of  the  land  were  exempt.  And  as  no  vassal  could  at  will 
divest  himself  of  servitude  or  allegiance  to  his  lord  or 
suzerain,  so  the  obligation  to  pay  taxes  always  remained 
upon  him  as  a  personal  servitude,  whatever  might  be  the 
location  of  his  property.  In  other  words,  the  condition 
of  the  masses  all  over  Europe  during  the  middle  ages  was 
not  unlike  the  condition  of  the  slaves  in  the  United  States 
previous  to  emancipation.  They  (the  slaves)  had  property 
in  their  possession,  and  spoke  of  themselves  as  owners  of 
property,  but  in  reality  their  property  followed  the  con- 
dition of  the  servitude  of  their  persons,  and  both  persons 
and  property  belonged  equally  to  the  masters.  [The  taille, 
furthermore,  as  a  badge  of  servitude,  was  supposed  to  dis- 
honour whoever  was  subject  to  it,  and  degrade  him,  not 
only  below  the  rank  of  a  gentleman,  but  that  of  a  burgher, 
or  inhabitant  of  a  borough  or  town ;  and  "  no  gentleman,  or 
even  any  burgher,"  says  Adam  Smith,  "  who  has  stock, 
will  submit  to  this  degradation."]  Now,  the  idea  embodied 
in  the  word  servitude  is  an  obligation  to  render  service, 
irrespective  of  or  without  compensation ;  and  the  idea  upon 
which  the  taxation  of  personal  property  in  this  country 
has  been  based  is,  that  the  property  owes  a  servitude  to 
the  State  where  the  owner  resides,  irrespective  of  its  actual 
location,  in  virtue  of  the  obligation  which  its  owner,  as  a 
citizen,  may  owe  to  the  State  by  reason  of  the  protection 
which  the  State  gives  him  in  respect  to  his  person. 

Again,  in  old  times,  the  division  of  property  into  real 
and  personal  was  wholly  unknown ;  and  under  the  common 
law  all  property  was  classed  as  lands,  tenements,  heredita- 
ments, and  goods  and  chattels.  "  In  the  course  of  time, 
however,  leases  of  land  for  a  term  of  years  were  classed 
as  chattels,  and  were  distinguished  as  chattels  real;  while 
other  chattels,  which  did  not  savour  of  lands,  were  called 
chattels  personal,  '  because,'  says  Lord  Coke,  '  for  the  most 
part  they  belong  to  the  person  of  a  man,  or  else  for  that, 
they  are  to  be  recovered  by  personal  actions.'  And  Black- 
stone  tells  us  that  '  chattels  personal  are  property,  and, 
strictly  speaking,  things  movable,  which  may  be  annexed 
to,  or  attendant  on,  the  person  of  the  owner,  and  carried 
about  with  him  from  one  part  of  the  world  to  another ' ; 
and  as  instances  he  mentions  money,  jewelry,  garments. 
Personal  property,  in  fact,  consisted  almost  entirely  of 


CHANGES  IN  LAWS.  445 

such  things  as  could  be,  and  actually  were,  carried  about 
with  the  person  of  the  owner,  or  could  be  easily  secreted. 
And  Blackstone  also  tells  us  that  the  amount  of  the  per- 
sonal estate  of  our  ancestors  was  so  trifling  that  they 
entertained  a  very  low  and  contemptuous  opinion  of  it; 
and  that  our  '  ancient  law  books  do  not,  therefore,  often 
condescend  to  regulate  this  species  of  property.'  Nothing 
of  an  incorporeal  nature,  as  credits,  bonds,  and  mortgages, 
certificates  of  stock,  was  anciently  comprehended  within 
the  class  of  personal  chattels,  and  in  fact  there  were  few 
or  no  such  instrumentalities  for  representing  or  facilitat- 
ing the  exchanges  of  property.  It  was  otherwise  as  to 
lands  or  real  property,  as  to  which  '  incorporeal  heredita- 
ments '  occupied  a  conspicuous  place  from  the  earliest 
times.  Such  was  personal  property  in  the  early  history 
of  our  laws.  It  was  of  comparatively  small  importance, 
and  its  laws  were  few  and  simple;  while  real  property, 
being  of  a  fixed  and  permanent  nature,  was  regarded  as 
immeasurably  more  valuable,  and  was  governed  by  laws 
of  its  own,  of  the  most  intricate  and  abstruse  character. 
And  because  of  the  feudal  tenure  by  which  lands  were  held/ 
arose  the  notion,  which  became  a  fiction  of  the  law,  that] 
property,  merely  personal,  always  attended  the  person  of 
its  owner;  while  lands,  tenements,  and  hereditaments, 
being  fixed  and  immovable,  and  of  infinitely  more  con- 
sideration, were  held,  from  their  very  nature,  as  well  as 
from  motives  of  political  policy,  to  have  a  situs  of  their 
own,  from  which  they  derived  their  laws  and  incidents, 
wholly  regardless  of  the  domicile  of  the  owner.  Growing 
out  of  the  same  reasons,  it  was  also  the  prevailing  opinion 
that,  while  immovables  were  exclusively  governed  by  the 
law  of  locality,  movables  were  controlled,  according  to  the 
same  maxim,  by  the  law  of  the  domicile  of  the  owner,  and 
not  by  that  of  its  situs."  In  the  changed  condition  of 
wealth  and  property,  such  a  fiction,  however  suitable  and 
useful  in  primitive  times,  would  now,  in  many  cases,  work 
the  greatest  injustice,  and  impair  the  supremacy  which 
every  government  should  maintain  over  everything  within 
its  territory,  both  on  the  ground  of  public  expediency  and 
the  private  interests  of  its  citizens.  And,  according  to 
Wharton  {Treatise  on  the  Conflict  of  Laws,  1872),  this 
fiction  of  law  has  been  universally  abandoned  upon  the 


446    THE   THEORY  AND   PRACTICE   OP   TAXATION. 

continent  of  Europe,  except  in  cases  as  to  rights  in  respect 
to  personalty  which  sprang  from  marriage  and  succession, 
and  would  not,  furthermore,  in  Europe,  find  a  place  in 
any  discussion  of  the  principles  of  taxation,  except  possibly 
^in  a  review  of  curious  tax  experiences,  and  for  the  reason 
I  that  nowhere,  except  in  the  United  States,  is  there  any  sys- 

item  of  extra-territorial  taxation,  or  any  tolerance  given  to 
the  ideas  upon  which  it  is  founded. 
«-  ,        J     This   question    of   extra-territorial    taxation   has    been 
^  >>Taised  repeatedly  before  the  highest  courts  of  the  United 
^  K^      States,  and  its  illegality  in  respect  to  visible,  tangible  prop- 
^Y^       erty  is  believed  to  have  been  in  every  instance  affirmed. 
^^  Thus   in   the   State   of   New   York,   up   to   the  years 

1861-'63,  the  rule  of  assessment  of  personal  property  ap- 
pears to  have  been  in  accordance  with  that  now  recognised 
in  Massachusetts — viz.,  that  it  follows  the  owner  under 
all  circumstances;  but  in  that  year  a  case  of  much  im- 
portance was  carried  up  to  its  Court  of  Appeals  under 
the  following  circumstances :  One  Hoyt  was  taxed  in  the 
city  of  New  York  for  personal  property,  and  resisted  the 
taxation  on  the  ground  that,  although  he  had  personal 
property  outside  of  the  State,  he  had  none  within  the  State 
in  excess  of  his  just  debts  and  liabilities;  the  property  in 
question  without  the  State  being  capital  employed  in  busi- 
ness in  New  Orleans,  and  farm  stock  and  household  fur- 
niture in  New  Jersey,  each  taxable  by  local  law  in  the 
States  where  situated.  The  Court  of  Appeals  decided  the 
assessment  to  be  illegal,  and  held  (Comstock,  C.  J.)  that 
the  property  was  actually  situated  in  other  States,  in  other 
sovereignties,  protected  by  their  laws  and  taxable  there, 
and  therefore  it  ought  not  to  be  subject  to  a  second  taxa- 
tion in  New  York. 

The  court  also,  in  rendering  the  decision,  used  the  fol- 
lowing language :  "  There  seems  to  be  no  place  for  the 
fiction "   (that  personal  property  follows  the  owner)   "  in 
a  well-adjusted  system  of  taxation.     In  such  a  system  a 
fundamental  requisite  is  that  it  be  harmonious,  but  har- 
mony does  not  exist  imless  the  taxing  power  is  exerted 
with  reference  exclusively  either  to  the  situs  of  the  prop- 
l  erty  or  to  the  residence  of  the  owner.     Both  rules  can  not 
\  obtain,   unless   we   impute   inconsistency  to   the   law   and 
\  oppression  to  the  taxing  power.    Whichever  of  these  rules 


DISAPPEARANCE  OP   THE  FICTION.  447 

we  find  to  be  the  true  one,  whichever  we  find  to  be  founded 
in  justice  and  the  reason  of  the  thing,  it  necessarily  ex- 
cludes the  other;  because  we  ought  to  suppose,  indeed,  we 
are  bound  to  assume,  that  other  States  and  governments 
have  adopted  the  same  rule.  If,  then,  proceeding  on  the 
true  principles  of  taxation,  we  subject  to  its  burdens  all 
goods  and  chattels  actually  within  our  jurisdiction  with- 
out regard  to  the  owner's  domicile,  it  must  be  understood 
that  the  same  rule  prevail  everywhere.  If  we  proceed  in 
the  opposite  rule,  and  impose  the  tax  on  account  of  the 
domicile,  without  regard  to  the  actual  situs,  while  the  same 
property  is  taxed  in  another  sovereignty  by  reason  of  its 
situs  there,  we  necessarily  subject  the  citizen  to  a  double 
taxation,  and  for  this  no  sound  reason  can  be  given." 

In  further  support  of  its  position  the  court  made  use 
of  the  following  illustration :  "  A  citizen,  a  resident  of 
Massachusetts,  may  own  a  farm  in  one  of  the  counties  of 
this  State,  and  large  wealth  belonging  to  him  may  be  in- 
vested in  cattle,  in  sheep  or  horses,  which  graze  the  fields, 
or  are  visible  to  the  eyes  of  the  taxing  power.     Now,  these 
goods  and  chattels  have  an  actual  situs  as  distinctly  as 
the  farm  itself.    Putting  the  inquiry,  therefore,  with  refer- 
ence to  both,  '  Are  they  real  estate,  and  personal  ? '  so  as 
to  be  subject  to  taxation  under  that  definition.     It  seems 
that  but  one  answer  can  be  given  to  this  question,  and  that 
answer  must  be  according  to  the  actual  triith  of  the  case. 
If   we   take   the   fiction   instead   of   the   truth,   then   the 
situs  of  these  chattels  is  in  Massachusetts,  and  they  are  not 
within  this  State.     The  statute  means  one  thing  or  the 
other;  it  can  not  have  double  or  inconsistent  interpreta- 
tions; and  as  this  is  impossible,  so  we  can  not,  under  and 
according  to  the  statute,  tax  the  citizen  of  Massachusetts 
with  respect  to  his  chattels  here,  and  at  the  same  time 
tax  the  citizen  of  New  York  in  respect  to  his  chattels, 
having  an  actual  situs  there.     In  both  cases  the  propertyX 
must  he  within  the  State,  or  there  is  no  right  to  tax  at  aZ?."l 
/     Since  this  decision  by  its  highest  court,  personal  prop- 
/erty,  though  owned  in  the  State  of  New  York,  is  not  tax-      ^ 
able  to  its  owner  there,  provided  it  is  capable  of  and  has  a  /^ 
permanent  situs  away  from  the  owner  or  his  domicile.     /•' 
The  United  States  Supreme  Court   (Hayes  vs.  Pacific 
Mail  Company,  17  Howard,  713)   decided  that  the  situs 


448    THE  THEORY  AKD  PRACTICE  OF  TAXATION. 

of  a  vessel  for  State  taxation  is  only  at  the  port  where  it 
is  registered,  and  not  where  it  may  happen  to  be. 

In  the  case  of  The  City  of  New  Albany  vs.  Meekin 
(3  Indiana  Reports,  481),  the  defendant  was  a  resident 
of  New  Albany,  and  was  assessed  for  personal  property  in 
respect  to  a  steamboat  enrolled  at  Louisville,  Kentucky, 
and  which  touched  only  occasionally  at  New  Albany.  It 
was  held  that  the  tax  was  illegal,  the  Supreme  Court  ob- 
serving that  "  the  only  question  we  have  to  consider  is 
whether  the  boat  or  the  defendant's  share  is  within  the 
city." 

It  is  also  an  interesting  circumstance  that  this  legal 
controversy  concerning  the  situs  of  a  ship  for  the  purpose 
of  taxation  has  almost  its  exact  counterpart  in  the 
records  of  English  law;  case  after  case  having  formerly 
come  up  before  the  English  courts  in  which  the  question 
involved  was.  Shall  the  ship  or  her  owners  be  taxed  at  the 
place  of  the  vessel's  registry,  or  at  the  domicile  of  her 
proprietors?  The  ultimate  decision  was,  that  the  only 
situs  of  a  vessel  for  taxation  is  the  port  of  her  registry,  and 
this  decision  was  recognised  in  practice  until  Parliament 
and  the  people  arrived  at  the  conclusion  that  it  was  for 
the  interest  of  the  nation  that  ships  should  no  longer  be 
taxed  directly  in  any  manner. 

The  United  States  Supreme  Court,  in  the  case  of  the 
Northern  Central  Railroad  vs.  Jackson  (7  Wallace,  262), 
also  affirmed  the  principle  that  two  States  can  not  tax  at 
the  same  time  the  same  property,  nor  can  a  State  tax  prop- 
erty and  interest  lying  heyond  her  jurisdiction.  The  rail- 
road corporation  in  question,  extending  from  Baltimore 
in  Maryland  to  Sunbury  in  Pennsylvania,  was  the  result 
of  the  consolidation  of  four  railroad  companies,  one  in- 
corporated by  the  State  of  Maryland  and  three  by  the  State 
of  Pennsylvania.  The  latter  State  imposed  a  tax  of  three 
mills  per  dollar  of  the  principal  of  each  bond  issued  by 
said  road,  which  tax  the  company,  at  their  office  in  Balti- 
more, deducted  from  the  coupons  of  the  bonds  of  said 
consolidated  road  held  by  Jackson,  an  alien,  resident  in 
Ireland.  The  court,  by  Mr.  Justice  Nelson,  decided  ad- 
versely to  the  tax,  on  the  ground  that  the  bonds  were  issued 
upon  the  credit  of  the  line  of  the  road,  a  portion  of  which 
was  within  the  jurisdiction  of  the  State  of  Maryland,  and 


THE  QUESTION  OP  SITUS.  449 

that  the  security,  bound  and  pledged  for  the  payment  of 
the  bonds  and  of  the  interest  on  them,  embraces  the  Mary- 
land portion  of  the  road  equally  with  that  portion  situated 
in  the  State  of  Pennsylvania ;  respecting  which  condition 
of  affairs  the  court  used  the  following  language : 

"  It  is  apparent,  if  the  State  of  Pennsylvania  is  at 
liberty  to  tax  these  bonds,  that  to  the  extent  of  this  Mary- 
land portion  of  the  road  she  is  taxing  property  and  interest 
beyond  her  jurisdiction.  Again,  if  Pennsylvania  can  tax 
these  bonds,  upon  the  same  principle  Maryland  can  tax 
them.  This  is  too  apparent  to  require  argument.  The 
consequence,  if  permitted,  would  be  double  taxation  of  the 
bondholder,  and  its  effect  is  readily  seen.  Thus  a  tax  of 
three  mills  per  dollar  of  the  principal,  at  an  interest  of 
six  per  centum,  payable  semiannually,  is  ten  per  centum 
per  annum  of  the  interest ;  a  tax,  therefore,  by  each  State, 
at  this  rate,  amounts  to  an  annual  reduction  from  the 
coupons  of  twenty  per  centum;  and  if  this  consolidation 
of  the  line  of  the  road  had  extended  into  New  York  or 
Ohio,  or  into  both,  the  deduction  would  have  been  thirty 
or  forty.  If  Pennsylvania  must  tax  bonds  of  this  descrip- 
tion, she  must  confine  it  to  bonds  issued  exclusively  by  her 
own  corporations.  Our  conclusion  is,  that  to  permit  the 
deduction  of  the  tax  from  the  coupons  in  question  would 
be  giving  effect  to  the  acts  of  the  Penns3dvania  Legislature 
upon  property  and  interests  lying  beyond  her  jurisdiction.''^ 

Again,  the  national  (United  States)  bank  act  acknowl- 
edges,  and  the  courts  of  the  United  States  have  so  held,\%y^PuU(V 
that  a  bank  has  a  situs  and  its  shares  a  situs  where  the  I  /->>        Xn 
bank  is  located,  and  not  where  the  stockholders  reside.  I  \  Vv***^ 
The  national  bank  act,  therefore,  discards  the  usual  State  t  \\^ 

principle  of  taxation,  that  personal  property  follows  the  (  r'V^'*^ 
owner. 

A  debt  incurred  for  stock  in  a  corporation  has  recently 
(1897)  been  held  by  the  Appellate  Supreme  Court  of  New 
York  as  non-taxable,  because  the  assets  represented  by  the 
stocks  are  assessed  and  taxed. 

But  are  credits,  in  any  or  all  of  the  various  forms  in 
which  they  are  exemplified,  property?  This  question 
brings  us  face  to  face  with  another  of  those  curious  anom- 
alies of  opinion  and  practice  that  characterize  this  whole 
subject  of  taxation. 


450    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

In  most  of  the  States  of  the  Federal  Union  credits  are 
generally  regarded  as  property,  and  are  made  the  subject 
of  taxation  at  the  residence  or  domicile  of  their  owner,  and 
are  held  to  embrace  all  debts  due  from  solvent  debtors, 
whether  on  account,  contract,  note,  bond,  or  mortgage, 
and  stocks  in  moneyed  corporations,  irrespective  of  the 
place  where  such  securities  may  be  at  the  time  the  assess- 
ment shall  be  made.  In  States,  however,  like  New  York, 
which  reject  the  assumption  that  the  situs  of  movable, 
visible,  personal  property  for  taxation  follows  the  owner 
irrespective  of  its  actual  location,  and  accept  the  decision 
of  its  own  courts,  that  the  situs  of  such  property  for  taxa- 
tion is  where  it  is,  and  independent  of  the  domicile  of  its 
owner,  the  opposite  rule  is  held  to  apply  to  credits. 

On  the  other  hand,  in  all  other  countries  of  high  civili- 
zation, credits  are  not  regarded  as  property  in  the  sense  of 
an  actuality,  and  are  not  subjected  to  direct  taxation.  In 
France,  which  is  at  the  present  encumbered  with  a  greater 
national  debt  than  has  ever  before  been  borne  by  any 
nation,  and  where  almost  every  expedient  for  raising  reve- 
nue to  defray  its  extraordinary  national  expenditures  has 
been  resorted  to,  no  attempt  or  even  a  proposition  has  been 
made  to  tax  credits.  It  is,  therefore,  of  the  first  impor- 
tance that  the  American  public,  and  especially  that  por- 
tion of  it  that  enacts  tax  laws,  shall  have  a  clearer  and 
more  correct  idea  of  the  nature  of  property  than  it  now 
possesses ;  and  that  there  shall  be  eliminated  from  all  such 
laws  the  idea  that  extensively  prevails  in  the  United  States, 
but  in  no  other  country,  that  "  nothing  "  can  be  "  some- 
thing," if  a  statute  will  only  so  provide. 

That  there  is  some  warrant  and  defence  for  such  an 
idea  is  to  be  found  in  the  fact  that  there  is  not  a  unity 
^of  opinion  among  economists  on  this  subject;  and  that  in 
common  parlance  and  dictionary  use  the  term  "  property  " 
is  made  applicable  to  the  qualities,  rights,  and  titles  of 
"  things  "  equally  with  the  things  themselves.  Thus,  ac- 
cording to  the  ancient  though  still  existing  law  of  Scot- 
land, what  is  termed  "  real  property  "  in  England  is  termed 
"  heritable  rights  "  in  Scotland,  and  what  is  termed  "  per- 
sonal property  "  in  England  is  termed  "  movable  rights  " 
in  Scotland.  Ancient  usage  is,  however,  no  warrant  for 
the  continued  use  of  definitions   not  applicable  to  new 


DEFINITIONS  OF  PROPERTY.  451 

conditions,  and  the  acceptance  of  which  as  authority  for 
conduct  is  provocative  of  immorality,  injustice,  and  un- 
sound fiscal  policy.  Prof.  H.  Dunning  Macleod,  a  dis- 
tinguished English  economist,  who  has  many  adherents, 
has  vigorously  advanced  the  idea  that  everything  that  can 
be  bought  and  sold  is  property,  and  assigns  to  the  old 
Greek  philosopher  Aristotle  the  honour  of  its  original  con- 
ception; but  without  mentioning  that  at  the  period  at 
which  Aristotle  lived  there  was  practically  nothing  bought 
or  sold  except  things  tangible  and  visible,  and  that  credits 
were  practically  unknown. 

Attractive  as  this  idea  may  be  in  theory,  it  needs  but 
practical  application  to  demonstrate  its  absurdity.  Thus, 
when  the  Church  sold  "  absolution "  from  sin,  did  the 
buyer,  to  quote  from  old  Wycliffe,  "  have  property  in 
ghostly  goods,  in  which  no  material  or  property  may  be 
regarded  as  inhering "  ?  Service,  again,  is  bought  and 
sold;  but  when  its  purchase,  as  in  the  case  of  the  hire  of 
incompetent  or  dishonest  persons,  results  in  the  impair- 
ment or  complete  waste  or  destruction  of  property,  is  it 
entitled  to  be  regarded  as  property?  When  a  ticket  to  a 
theatre  or  concert  is  sold  and  bought,  can  the  temporary 
right  to  a  seat,  or  the  brief  sense  of  pleasure  which  the 
purchaser  receives  in  return,  and  which  he  can  not  per- 
petuate without  renewed  buying,  and  can  not  transfer  to 
another  person,  be  entitled  to  be  called  property  ?  "  When 
socialists  and  communists,"  says  Professor  Macleod,  "  wish 
to  destroy  property,  it  is  not  the  material  things  they  wish 
to  destroy,  but  the  exclusive  right  which  private  persons 
have  in  them."  If  this  assertion  is  warranted,  the  question 
is  pertinent.  Why  is  it,  when  socialists  or  communists  have 
the  opportunity  to  destroy  property,  they  rarely  proceed 
against  property  over  which  private  persons  have  exclusive 
control — like  private  dwellings — but  rather  against  monu- 
ments or  buildings,  and  constructions  which  are  acknowl- 
edged to  be  public  as  respects  use  and  control?  Again, 
Professor  Macleod  further  holds  that  not  only  is  the 
right  to  a  thing,  which  is  not  at  the  time  of  sale  in 
existence,  but  is  to  be  acquired  in  the  future,  property; 
but  also  that  a  mere  pmviifip  to  deliver  a  commodity  is 
property  of  the  same  general  nature  as  money  and  an 
actuality. 


452    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

The  Foreign-held  Bond  Case:  a  New  Chapter  of 
Progress. — Any  review  of  this  general  subject  of  "  double 
taxation "  would  be  imperfect  that  failed  to  particularly 
call  attention  to  a  decision  of  the  United  States  Supreme 
Court  which,  although  of  the  first  importance  as  touching 
the  correct  administration  of  a  free  and  intelligent  govern- 
ment, has  thus  far  attracted  little  attention,  even  among 
members  of  the  American  bar. 

The  subject  in  question,  furthermore,  illustrates  the 
historical  principle  that  changes  in  free  governments  have 
more  often  been  effected  through  the  decisions  of  their 
highest  courts  than  by  direct  legislation.  Thus  it  is  known 
to  all  who  have  examined  the  theory  and  practice  of  local 
taxation  in  the  United  States,  that  a  hundred  years  ago 
or  less,  the  lawmakers  of  England  entertained  very  gen- 
erally the  same  opinion  in  regard  to  this  subject  which  is 
yet  popularly  accepted  in  this  country,  namely,  that  in 
order  to  secure  exact  justice  and  equality  it  is  essential 
to  attempt  to  subject  all  property  of  the  taxpayer — real 
and  personal,  tangible  and  intangible,  visible  and  invisible 
— to  one  uniform  rate  of  valuation  and  assessment;  al- 
though it  must  then,  as  now,  have  been  evident  to  every 
one  on  reflection  that,  in  order  to  attempt  to  do  this,  it 
would  be  necessary  to  endow  the  assessors  with  more  than 
mortal  powers  of  perception,  so  as  to  enable  them  to  see 
what  was  invisible,  and  measure  what  was  intangible  and 
incorporeal  (debts  and  credits,  for  example)  ;  and  that, 
in  default  thereof,  any  practical  application  of  this  theory 
must  result  in  rank  absurdity  and  injustice.  And  yet  it 
is  curious  to  note  that  the  change  in  English  taxation, 
when  it  came  about,  was  not  due  to  any  such  process  of 
reasoning  on  the  part  of  the  people,  or  to  any  positive 
sentiment  on  the  part  of  the  state,  but  rather  to  a  series 
of  legal  decisions  by  its  courts,  which  gradually  under- 
mined the  whole  system  of  British  local  tax  assessment, 
until  it  tumbled  down,  as  it  were,  imperceptibly,  and 
gradually  became  replaced,  from  necessity,  by  a  theory 
which  approximated  more  closely  to  the  principles  of  sound 
political  economy  and  the  dictates  of  common  sense. 

Thus,  one  of  the  first  of  the  old-time  maxims  which 
gave  way  under  these  decisions  was  the  fiction  of  law  that 
all  property  for  the  purpose  of  taxation  followed  the  per- 


FOREIGN-HELD   BOND  CASE.  453 

son  or  domicile  of  the  owner  (in  virtue  of  which  real  estate 
was  once  taxed,  under  the  British  system,  where  the  owner 
resided,  in  place  of  where  the  property  was  situated,  used, 
and  protected),  and  its  replacement  by  the  more  rational 
principle  that  for  all  purposes  of  assessment  the  situs  of 
property  is  where  the  property  actually  is ;  while  other  de- 
cisions of  a  similar  character,  following  one  another  by 
intervals  of  years,  forbade  the  taxation,  for  local  purposes, 
of  all  evidences  of  national  indebtedness,  or  "  consols " ; 
affirmed  the  situs  of  a  vessel  for  taxation  to  be  at  the  port 
of  its  registry,  irrespective  of  the  domicile  of  the  owner; 
and  declared  that  all  negotiable  instruments  are  chattels 
personal,  and  the  like;  until  the  British  system  of  local 
taxation,  like  the  French,  Belgian,  and  German,  has  come 
to  be  based  on  the  assessment  of  comparatively  few  objects, 
and  the  avoidance  in  assessment,  to  the  greatest  possible 
extent,  of  all  personal  inquisition  and  arbitrary  treatment. 

A  case  in  question  determining  definitely,  as  it  would 
appear,  the  hitherto  questionable  situs  for  State  taxation 
of  all  that  large  class  of  personal  property  comprised  under 
the  general  term  "  negotiable  instruments  " — i.  e.,  State, 
municipal,  railroad,  and  other  corporate  bonds,  circulating 
notes  of  banking  institutions,  promissory  notes  payable  to 
bearer,  etc. — is  reported  in  the  fifteenth  volume  of  Wal- 
lace, under  the  title  of  State  Tax  on  Foreign-held  Bonds, 
and  in  brief  may  be  thus  stated: 

The  State  of  Pennsylvania,  by  a  law  passed  in  1868, 
required  the  officers  of  every  company,  except  banks  or 
savings  institutions,  incorporated  and  doing  business  in 
that  State,  to  retain  a  tax  of  "  five  per  cent "  upon  every 
dollar  of  interest  paid  by  such  company  to  its  bondholders 
or  other  creditors,  and  to  pay  over  the  same  to  the  State 
Treasurer  for  the  use  of  the  Commonwealth.  The  plaintiff 
in  this  specific  case — the  Cleveland,  Painesville,  and  Ashta- 
bula Eailroad  Company — denied  the  legality  of  the  tax, 
and,  appealing  to  the  State  courts,  alleged,  among  other 
things,  the  following  in  support  of  its  position: 

"  That  the  greater  portion  of  the  bonds  of  the  company 
having  been  issued  upon  loans  made  and  payable  out  of 
the  State  to  non-residents  of  Pennsylvania,  citizens  of  other 
States,  and  being  held  by  them,  the  act  in  question,  in  au- 
thorizing the  tax  upon  the  interest  stipulated  in  the  bonds, 


454    THE  THEORY   AND   PRACTICE   OF  TAXATION. 

so  far  as  it  applied  to  the  bonds  thus  issued  and  held,  im- 
paired the  obligation  of  the  contracts  between  the  bond- 
holders and  the  company,  and  was  therefore  repugnant 
to  the  Constitution  of  the  United  States  and  void." 

The  several  State  courts  of  Pennsylvania,  however, 
aflfirmed  the  validity  of  the  tax;  but  the  case  having  then 
been  carried  on  writ  of  error  to  the  Supreme  Court  of  the 
United  States,  the  latter  in  December,  1873,  reversed  the 
judgment  of  the  State  courts,  and  decided  in  favour  of 
the  plaintiff ;  the  opinions  of  the  court,  as  expressed  by  Mr. 
Justice  Field,  being  substantially  as  follows: 

I.  The  power  of  taxation  of  a  State  is  limited  to  per- 
sons, property,  and  business  within  her  jurisdiction;  all 
taxation  must  relate  to  one  of  these  subjects. 

II.  The  tax  laws  of  a  State  can  have  no  extra-territorial 
operation;  nor  can  any  law  of  a  State  inconsistent  ivith  the 
terms  of  a  contract  made  with  and  payable  to  parties  out 
of  the  State  have  any  effect  tipon  the  contract  while  it  is 
in  the  hands  of  such  parties  or  other  non-residents  of  the 
State. 

III.  Bonds  issued  by  a  railroad  company  are  property 
in  the  hands  of  the  holders,  and  when  held  by  non-residents 
of  the  State  in  which  the  company  was  incorporated  are 
property  beyond  the  jurisdiction  of  the  State. 

It  will  be  observed  under  the  third  head  (the  language 
above  quoted  being  the  official  prefatory  syllabus  of  the 
decision)  that  the  court  lays  down  the  rule  that  negotiable 
bonds  are  property,  not  in  the  place  where  issued,  as  was 
claimed  by  the  authorities  of  Pennsylvania,  and  not  at  the 
domicile  of  the  owner  irrespective  of  actual  presence,  as 
was  generally  claimed  by  the  State  tax  officials,  but  in  the 
hands  of  the  holders  at  the  place  where  the  bonds  are 
actually  situated,  whether  the  holders  be  actual,  bona  fide 
owners  or  otherwise.  And  the  following  is  the  exact  lan- 
guage in  which  the  decision  was  expressed : 

"  It  is  undoubtedly  true  that  the  actual  situs  of  personal 
property  Avhich  has  a  visible,  tangible  existence,  and  not 
the  domicile  of  its  owner,  will  in  many  cases  determine 
the  State  in  which  it  may  be  taxed.  The  same  theory  (i.  e., 
the  actual  situs  determinative)  is  true  of  public  securities 
consisting  of  State  bonds,  and  bonds  of  municipal  bodies, 
and  circulating  notes  of  banking  institutions;  the  former, 


LIMITATION  OF  TAX  JURISDICTION.  455 

by  general  usage,  have  acquired  the  character  of,  and  are 
treated  as,  property  in  the  place  where  they  are  found, 
though  removed  from  the  domicile  of  the  oivner ;  and  the 
latter  are  treated  and  pass  as  money  wherever  they  are." 

If,  now,  there  is  any  meaning  in  words,  and  if  the 
authority  of  the  United  States  Supreme  Court  in  defining 
the  powers  and  jurisdiction  of  the  States  is  as  absolute 
as  is  generally  supposed,  it  is  clearly  evident  that  the 
first  clause  of  the  above-quoted  opinion  effectually  estab- 
lishes the  unconstitutionality  and  illegality  of  the  theory 
and  practice  of  Massachusetts  and  other  States,  namely, 
that  in  virtue  of  jurisdiction  over  the  person  and  domicile 
a  State  has  a  right  to  tax  so  much  of  the  visible,  tangible, 
personal  property  of  its  citizens — i.  e.,  horses,  cattle,  stocks 
of  goods,  money,  bullion,  and  the  like — as  may  be  without 
its  territory  and  jurisdiction:  the  law  of  Massachusetts, 
for  example,  defining  personal  property  for  the  purpose 
of  taxation  to  be  "  goods,  chattels,  money,  and  effects, 
wherever  they  are."  * 

If  it  be  objected  that  the  court,  by  using  the  expression 
"  in  many  cases,"  does  not  make  its  rale  absolute  and  un- 
qualified, the  answer  is  that  the  exceptions,  when  under- 
stood, will  be  found  to  be  of  a  character  which  proves  and 
strengthens  the  rule,  rather  than  antagonizes  it.  Thus, 
as  has  been  already  noticed,  the  United  St-ates  Supreme 
Court  has  decided  that  the  situs  for  taxation  of  vessels 
which  move  about  on  the  high  seas  or  navigable  inland 
waters  must  be  at  the  home  port  where  they  are  owned  and 
registered;  and  it  also  stands  to  reason  that  the  situs  of 
such  property  as  railroad  cars,  or  other  chattels  which  as  a 
condition  of  using  are  perpetually  in  transitu,  in  order  to 
avoid  duplicate  taxation  and  conflicting  statutes,  must  be 
taxed,  if  taxed  at  all,  under  the  head  of  the  franchise  of 
the  company  or  owners.  But  in  all  cases  where  fixity  or 
permanence  are  conditions  of  using,  it  may  be  unquestion- 

*  In  IMassachusetts,  within  the  last  half  century,  a  citizen  has 
been  threatened  with  arrest  and  imprisonment  for  objectinf?  to 
pay  taxes  in  that  State  on  goods  located  in  a  store  in  San  Fran- 
cisco and  paying  taxes  thereon  in  the  State  of  California.  Bullion 
in  the  vaults  of  the  Bank  of  England  has  also  been  taxed  to  citi- 
zens of  Massachusetts  as  personal  property  within  a  comparatively 
recent  period. 


456    THE   THEORY  AND   PRACTICE   OF  TAXATION. 

ably  affirmed  that  the  court  intended  to  make  no  exception 
in  its  rule  for  determining  where  visible,  tangible,  personal 
property  may  be  taxed,  and  where,  also,  it  is  of  necessity 
exempted  from  taxation. 

It  ought  to  be  superfluous,  but  in  view  of  existing  opin- 
ions and  practices  it  is  nevertheless  expedient  to  say  that 
the  reason  of  this  rule  is  founded  upon  a  circumstance  alike 
conformable  to  law  and  common  sense,  which  is  that  taxa- 
tion and  protection  are  correlative  terms;  or,  in  other 
words,  according  to  the  political  theory  of  our  govern- 
ments, national  and  State,  and,  in  fact,  of  every  govern- 
ment claiming  to  be  free,  that  taxes  are  the  compensation 
which  property  pays  to  the  State  for  protection;  or,  as 
Montesquieu,  in  his  Spirit  of  Laws,  has  it,  and  as  the 
United .  States  courts  have  again  and  again  expressed  it, 
that  "the  public  revenues  are  a  portion  that  each  subject 
gives  of  his  property  in  order  to  secure  and  enjoy  the  re- 
mainder." When,  therefore,  a  State  like  Massachusetts 
assesses  property  situated  beyond  its  territory  and  juris- 
diction, and  which  its  laws  are  not  competent  or  able  to 
either  reach  or  to  protect,  or  assesses  one  of  its  own  citi- 
zens in  respect  to  such  property,  the  act  has  no  claim  to  be 
regarded  as  taxation,  but  is  simply  arbitrary  taking,  or 
confiscation,  and  a  procedure  which  the  United  States  Su- 
preme Court  has,  at  least  in  the  case  under  consideration, 
declared  to  be  unconstitutional,  and  therefore  illegal  and 
unwarranted. 

The  court  having  thus  affirmed  the  situs  for  the  taxa- 
tion of  personal  property  which  has  a  visible  and  tangible 
existence,  has  now  taken  a  further  step  forward,  and  in 
the  second  clause  of  the  opinion  above  quoted  asserts  that 
"  the  same  thing  is  true  of  public  securities  consisting  of 
State  bonds,  and  bonds  of  municipal  bodies,  and  circulating 
notes  of  banking  institutions";  namely,  that  their  situs  for 
assessment  and  taxation  is  wholly  irrespective  and  apart 
from  any  whereabouts  of  the  owner  or  his  domicile,  but  is 
where  the  securities  actually  are.  So  much,  then,  is  so  clear 
that  even  the  most  obstinate  of  assessors  under  the  present 
arbitrary  system  will  find  it  difficult,  in  respect  to  the  items 
specified,  to  interpret  the  law  and  rule  of  action  otherwise. 
But  it  is  to  be  observed  that  negotiable  railroad  bonds  are 
not,  in  the  opinion  quoted,  specifically  mentioned. 


BANK  NOTES  AND  SECURITIES.  457 

That  they,  however,  follow  the  same  law  as  municipal 
and  State  bonds,  and  were  intended  by  the  court  to  be  in- 
cluded in  the  same  category,  is,  however,  obvious,  for  the 
following  reasons : 

1.  The  subject-matter  of  the  case  and  of  the  decision 
was  a  railroad  bond. 

2.  The  character  of  a  railroad  bond  as  a  negotiable  in- 
strument is  in  all  respects  the  same  as  a  State  or  municipal 
bond. 

3.  The  reason  which  undoubtedly  led  the  court  (as  it 
must  every  unprejudiced  reader  who  thinks  upon  the  sub- 
ject) to  the  conclusion  that  State,  municipal,  and  railroad 
bonds  and  bank  notes  follow  the  same  rule,  in  respect  to 
their  situs  for  taxation,  as  other  personal  property  of 
acknowledged  visible  and  tangible  character  is  that  the 
property  of  all  such  instruments  runs  with  the  instru- 
ment, wholly  irrespective  of  the  residence  of  the  owner, 
and  consequently,  in  respect  to  title,  passes  by  delivery. 
By  public  securities,  also,  the  court  undoubtedly  meant 
all  negotiable  securities  which  are  payable  to  the  public — 
that  is,  to  bearer  wherever  he  may  be;  or,  in  other  words, 
a  public  security,  from  its  very  nature,  is  subject  to  no 
previous  equities  between  the  original  parties  creating  or 
issuing  it,  and  the  sum  agreed  to  be  paid  is  a  liquidated 
and  adjusted  sum  which  must  be  paid  to  the  public — that 
is,  the  holder ;  and  the  situs  of  such  property  from  necessity 
follows  the  instrument  to  the  public,  and  can  be  nowhere 
else  than  where  the  instrument  actually  is.  On  the  other 
hand,  if  the  instrument  was  subject  to  equities,  the  prop- 
erty might  be  where  the  parties  creating  it  or  owning  it 
resided.  And  if  this  position  is  not  correct,  dealings  in  all 
such  securities,  or  upon  the  stock  exchange,  or  in  open 
market  would  be  impracticable;  inasmuch  as  the  purchaser 
would  be  obliged  to  institute  an  investigation  as  to  whether 
the  title  for  each  specific  bond  vested  in  the  vendor  or 
some  other  person;  and  as  there  is  no  registration  of  the 
transfer  of  such  property,  as  there  is  in  the  case  of  real 
estate,  the  investigation  must  be  practically  impossible. 
So,  also,  in  the  case  of  circulating  notes  of  banking  insti- 
tutions :  if  their  title  did  not  pass  by  delivery,  or,  in  other 
words,  if  their  situs  as  property  was  not  under  all  cir- 
cumstances accepted  as  in  the  hand  of  the  holder,  their 

30 


458    THE  THEORY   AND   PRACTICE  OF  TAXATION. 

use  as  money  would  be  impossible;  and  the  courts,  recog- 
nising this  principle  most  fully,  have  always  held  that  in 
cases  where  negotiable  instruments  or  money  have  been 
stolen,  and  in  consideration  for  value  received  have  come 
into  the  hands  of  innocent  third  parties,  the  title  to  such 
property  in  the  hands  of  the  holders  is  perfect  and  irrev- 
ocable. 

Again,  the  circumstance  that  State,  municipal,  and  rail- 
road bonds,  and  all  other  strictly  negotiable  instruments, 
even  warehouse  receipts  payable  to  bearer,  are  subject  to 
attachment  by  legal  process  only  at  the  place  where  they 
actually  are,  and  without  regard  to  the  whereabouts  of 
the  owner  or  his  domicile,  of  itself  also  clearly  defines  and 
limits  the  situs  of  such  property  for  taxation ;  for  clearly 
a  State  which  has  the  power  to  make  a  legal  attachment 
operative  against  a  given  property  has  also  the  power 
to  tax  such  property;  while,  on  the  other  hand,  a  State 
which  through  lack  of  possession  and  jurisdiction,  can  not 
attach  a  specific  property,  certainly  can  not  enforce  its  tax 
laws  against  it,  or  give  protection  in  case  its  rights  or  the 
rights  of  its  owners  are  violated.  And,  again,  can  the  right 
to  tax  personal  property  exist  in  a  State  from  which  the 
property  is  so  confessedly  absent  that  there  is  neither  right, 
power,  nor  possibility  of  passing  title  to  it  within  the  terri- 
tory of  the  State  by  delivery  ? 

That  the  view  thus  taken  respecting  the  situs  of  nego- 
tiable instruments,  and  especially  of  railroad  mortgage 
bonds,  for  taxation,  is  in  strict  conformity  with  the  opin- 
ion of  the  Supreme  Court,  is  also  evident  from  the  fact 
that  in  summing  up  the  court  held  that  not  only  was  a 
mortgage  bond  issued  by  a  railroad  chartered  by  Pennsyl- 
vania, and  in  the  hands  of  a  non-resident,  property  out  of 
the  State,  and  as  such  beyond  the  jurisdiction  of  the  tax- 
ing power  of  the  State,  but  also  that  the  State  could  not 
tax  such  property  even  when  owned  by  a  citizen  and  resi- 
dent, unless  the  bond  was  at  the  time  of  assessment  actually 
within  the  territory  of  the  State.  And  as  this  point  is  a 
most  important  one,  it  is  desirable  to  ask  attention  to  the 
exact  language  of  the  court  establishing  it. 

"  We  are  clear,"  says  Justice  Field,  "  that  the  tax  can 
not  be  sustained ;  that  the  bonds,  being  held  by  non-resi- 
dents of  the  State,  are  only  property  in  their  hands,  and 


EFFECT  OF  THE  DECISION.  459 

that  they  are  thus  beyond  the  jurisdiction  of  the  taxing 
power  of  the  State.  Even  where  the  hands  are  held  by  resi- 
dents of  the  State,  the  retention  by  the  company  of  a  por- 
tion of  the  stipulated  interest  can  only  be  sustained  as  a 
mode  of  collecting  a  tax  upon  that  species  of  property  in 
the  State.  When  the  property  is  out  of  the  State,  there  can 
he  no  tax  upon  it  for  which  interest  can  he  retained.  The 
tax  laws  of  Pennsylvania  can  have  no  extra-territorial 
operation." 

The  decision  of  the  United  States  Supreme  Court,  of 
which  an  analysis  has  been  above  given,  ought  therefore  to 
be  regarded  as  constituting  a  real  chapter  of  progress  in 
American  local  taxation;  because,  by  contributing  power- 
fully to  break  down  the  present  popular  system,  which, 
founded  on  an  erroneous  and  impracticable  principle,  never 
has  been  and  never  can  be  executed  with  justice  and  effi- 
ciency, the  time  is  thereby  hastened  when  a  better  system 
shall  be  accepted  and  inaugurated.  The  logic  of  this  de- 
cision, moroever,  will  not  only  pervade  courts — State  and 
Federal — but  will  be  felt  in  legislative  halls,  and  be  im- 
pressed upon  the  conscience  of  the  people.  The  court  itself, 
in  referring  to  the  tax  under  consideration,  says  with  great 
point  and  truth:  "It  is  only  one  of  many  cases  where, 
under  the  name  of  taxation,  an  oppressive  exaction  is  made, 
without  constitutional  warrant,  amounting  to  little  less 
than  an  arbitrary  seizure  of  private  property.  It  is,  in 
fact,  a  forced  contribution  levied  upon  property  held  in 
other  States,  where  it  is  subjected,  or  may  he  subjected, 
to  taxation  upon  an  estimate  of  its  full  value.'' 

But  this  new  decision  teaches  us  that  all  personal  prop- 
erty, if  taxed  at  all,  must  be  taxed  in  the  city  or  town  where 
found,  and  not  elsewhere.  The  injustice  and  oppression 
are  also  the  same  as  in  the  case  of  State  exterritorial  taxa- 
tion when  the  tax  is  levied  upon  a  person  for  property  not 
within  the  district  where  the  property  is  actually  located 
and  protected.  It  is  only  a  degree  of  oppression,  and  this 
authoritative  opinion  of  the  United  States  Supreme  Court 
can  not  fail  to  give  a  new  impulse  to  the  feeling  that  taxa- 
tion without  protection  is  merely  legalized  brigandage.* 

*  See  an  essay  on  Double  Taxation  in  the  United  States,  by 
Francis  Walker,  published  in  the  Studies  in  History,  Economies, 
and  Public  Law,  Columbia  College,  New  York. 


CHAPTER  XXI. 


WHAT    IS    PROPERTY; 


One  of  the  greatest  obstacles  in  the  way  of  framing  a 
correct  system  of  general  taxation  is  the  different  and 
wholly  antagonistic  opinions  that  popularly  prevail  as  to 
the  real  nature  of  what  constitutes  its  chief  objective  in 
respect  to  administrative  action,  namely,  "  property." 
This  point  finds  full  confirmation  and  illustration  by  refer- 
ence to  the  several  definitions  that  have  been  given  to  this 
term  by  various  recognised  authorities,  and  have  been  ac- 
cepted to  a  greater  or  less  extent  as  authoritative  by  a  gen- 
eral and  even  educated  public.  Thus,  as  before  noted,  a 
widely  accepted  definition  of  Professors  Macleod,  Perry, 
and  others  is,  that  everything  that  can  be  bought  or  sold 
is  property.  Thus,  even  the  random  ideas  of  an  anarchist 
are  a  form  of  wealth  at  present,  just  as  the  "  goaks  "  of 
Artemus  Ward  used  to  be — because  they  have  exchangeable 
value,  and  will  bring  a  certain  number  of  dollars  to  him, 
or  to  the  reporter  or  interviewer  who  gives  his  notions  to 
the  public.  So  the  beauty  of  an  actress,  the  nimble  legs  of 
a  dancer,  the  vocal  sweetness  of  an  opera  singer,  are  also 
forms  of  wealth,  since  they  have  an  exchangeable  value 
when  utilized.  And  hence  the  folly  of  the  socialists,  who 
suppose  that  by  dividing  property,  or  equalizing  the  dis- 
tribution of  land,  they  can  secure  equality  of  wealth,  since 
diversities  of  human  faculty  and  opportunities  would  in- 
stantly begin  to  make  this  imperfect  distribution  more  un- 
equal than  before.  Thus  the  Greek  philosopher  Aristotle, 
speaking  of  the  division  of  land  among  all  the  citizens 
of  his  time,  has  the  credit  of  shrewdly  saying,  "  Either  all 
kinds  of  property  must  be  equalized,  or  all  must  be  let 
alone."  According  to  Webster's  Dictionary,  that  "  to  which 
one  has  a  legal  title  "  is  property.  And  in  a  report  of  a 
460 


NATURE   OF   PROPERTY.  461 

recent  lecture,  a  leading  American  theologian  is  credited 
with  saying  to  an  assemblage  of  divinity  students  that 
"  he  adopted  as  the  basis  of  his  discussion  of  property  the 
'  profound  and  perfect '  definition  of  the  Roman  Catholic 
theologian  Brownson,  namely,  that '  property  is  communion 
with  God  through  the  material.'  And  to  realize  and  apply 
this  definition  is  the  great  duty  of  the  Christian  teacher."  * 

A  more  rational  conception  of  the  exact  nature  of  prop- 
erty, or  rather  of  what  property  consists,  would,  however, 
seem  to  lead  to  this  conclusion,  namely,  that  property,  at 
least  for  the  purpose  of  taxation,  is  always  a  physical  actu- 
ality, tvith  inhering  rights  or  titles,  the  product  solely  of 
labour,  and  is  always  measured  in  respect  to  value  and  for 
exchange  by  labour. 

Thus,  for  example,  a  fish  free  in  the  ocean  is  not  prop- 
erty; but  when  it  has  been  caught  through  the  instrumen- 
tality of  labour  it  becomes  property.  Property,  further- 
more, can  not  be  created  except  by  an  application  of  labour 
of  some  kind  to  material  substances,  which  because  they  are 
substances  and  in  order  to  be  substances  must  have  both  a 
corpus,  or  an  entity,  and  a  situs,  or  a  situation.  Human 
labour  incorporated  in  things,  and  thus  saved  to  those  who 
acquire  the  things,  is  also  what  constitutes  value  or  capital ; 
and  nothing  can  be  capital  but  the  existing  results  of  previ- 
ous labour,  which  can  contribute  to  man's  enjoyment  and 
well-being. 

It  is  interesting  also  to  note  in  this  connection  how  the 
etymology  of  the  Latin  words  possesses  and  possideo,  name- 
ly, po  and  sideo,  to  sit  by  or  on,  and  from  which  in  turn 
we  have  the  English  word  possession — the  common  defini- 
tion of  property  being  something  possessed — curiously  har- 
monizes with  and  confirms  the  conclusion  that  property 
must  be  always  a  physical  actuality.  For  it  is  clear  that  it 
is  only  a  material  something,  a  visible  and  tangible  entity, 
that  one  can  sit  down  on,  and  not  an  invisible,  intangible 
nothing,  the  fiction  of  law  or  of  the  imagination. 

A  limitation,  little  recognised  by  legal  writers  and  au- 
thorities, on  the  exercise  of  the  right  of  eminent  domain 
(the  name  given  to  the  power  inherent  in  state  sovereignty 

*  "  The  term  property  denotes  a  ripfht  over  a  dctenninative  tJiirifl. 
Property  is  the  right  of  any  person  to  possess,  use,  enjoy,  and  dis- 
pose of  a  thing." — Eaton  vs.  Boston,  51  N.  H.,  50 Jf. 


462    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

of  making  a  compulsory  purchase  of  private  property  for 
public  use),  also  sustains  the  correctness  of  the  definition 
of  property  as  above  given ;  inasmuch  as  this  right  is  never 
conceded  or  made  applicable  to  other  than  an  actuality, 
and  never  to  a  mere  representative  of  something  that  is 
not  material.  Thus  one  of  the  illustrations  of  Roman  juris- 
prudence handed  down  by  Tacitus  was  to  the  effect  that 
an  emperor  was  not  allowed  to  appropriate  the  right  to 
carry  a  stream  of  water  through  the  lands  of  a  private 
individual,  but  did  pay  damages  for  the  injuries  thereby 
accruing  to  the  lands. 

All  investigation  on  this  subject  can  therefore,  it  is  be- 
lieved, lead  to  but  one  conclusion,  and  that  is  that  prop- 
erty  is  always  "  embodied  or  accumidated  labour.^'  And 
as  political  economy  does  not  and  jurisprudence  ought  not 
to  take  cognisance  of  clidieaux  en  Espagne,  these  are  the 
only  senses  in  which  political  economy  and  the  law  can 
legitimately  reason  about  proj)erty.* 

*  The  statement  is  frequently  made  that  all  value  is  the  product 
of  labour.  Adam  Smith  says,  "  Labour  is  the  fund  which  originally 
supplies  a  nation  with  its  wealth."  McCulloch  says,  "  Labour  is 
the  only  source  of  wealth  ";  and  all  the  early  writers,  in  one  form 
or  another,  say  the  same  thing.  Accepting  under  such  circum- 
stances an  entire  misconception  of  the  true  meaning  of  the  word 
lahonr,  the  popular  mind  has  been  drawn  to  the  conclusion  that 
hand  labour  or  muscular  exertion  is  the  producer  of  all  value; 
and  has  added  the  corollary  that  hand  labour  is  therefore  entitled 
to  the  entire  value  thus  produced.  But  when  closely  examined, 
the  true  meaning  of  the  word  labour  will  be  found  to  be.  all  that. 
a  man  can  do,  either  uith  his  muscle  or  his  hrain.  On  this  crude 
misconception  of  the  meaning  of  words,  philanthropic  systems  have 
grown  up,  under  which  the  weaker  ones  have  lost  heart,  and  the 
stronger  ones  have  grown  desperate,  because  the  hard  sense  of 
humanity  does  not  accept  their  theories.  Also,  through  their  influ- 
ence, these  ideas  have  reacted  and  are  reacting  on  the  labourers 
themselves,  with  rather  lamentable  results.  Thus  it  is  a  very 
general  complaint  of  the  present  time  that  the  ordinary  workman, 
the  person  commonly  understood  by  the  word  "  labovirer,"  puts 
so  little  mind  into  his  or  her  work  that  it  is  perfunctory  to  the 
last  degree;  concerns  itself  very  little  with  results,  but  expends  its 
efforts  in  a  function  whose  sole  end  is  to  escape  blame  or  actual 
discharge,  and  to  get  along  with  the  least  possible  exertion;  when 
the  fact  is,  that  the  three  functions  of  capital  (which  is  accumu- 
lated labour),  labour  (in  the  muscular  sense),  and  management  (or 
brain  power)  must  as  a  rule  act  conjointly,  in  order  to  insure  the 
best  results.  "  In  more  recent  times,  a  truer  appreciation  of  this 
word  has  arisen,  but  even  yet  has  not  been  so  absorbed  into  the 


LABOUR  AND  PROPERTY.  463 

Examples  of  property  which  is  apparently  not  the  result 
of  accumulated  or  of  any  labour,  and  so  militating  against 
these  conclusions,  will  doubtless  suggest  themselves :  such, 
for  instance,  as  a  diamond  found  upon  the  seashore,  land 
squatted  upon  and  obtained  by  pre-emption,  bank  stock, 
patent  rights,  copyrights,  annuities  obtained  by  gift  or  pur- 
chase, franchises,  monopolies,  and  debts;  but  an  examina- 
tion will  soon  prove  that  the  objections  embodied  in  them 
are  more  specious  than  real.  Thus,  in  the  case  of  the  dia- 
mond accidentally  picked  up,  which  is  perhaps  one  of  the 
most  striking  of  all  the  examples  that  can  be  adduced  in 
favour  of  the  position  that  property  can  come  into  exist- 
ence without  the  agency  of  labour,  it  may  be  said :  first, 
that  an  exceptional  fact  like  this  can  not  constitute  an  ade- 
quate basis  for  the  enunciation  of  a  principle;  and,  next, 
that  the  value  of  this  accidental  diamond  is  solely  deter- 
mined by  and  represents  the  value  of  the  labour  which  has 
been  required  to  obtain  all  other  existing  diamonds.  The 
moment  the  fact  ceases  to  be  exceptional,  the  moment  dia- 
monds can  be  had  in  abundance  by  merely  picking  them 
up,  that  moment  their  value  will  simply  represent  the  cost 
of  the  physical  effort  requisite  to  pick  them  up.  Again, 
if  land  squatted  upon  has  any  value  as  property  whatever 
in  the  first  instance,  it  is  because  it  is  the  embodiment  of 
the  labour  required  to  discover  it,  to  conquer  it,  to  defend 
and  protect  it;  to  effect  all  of  which,  taxes,  which  are  the 
results  of  labour,  may  have  been  paid  for  centuries.  If  it 
acquires  any  additional  value  beyond  this,  after  it  has  been 
squatted  upon,  it  will  be  simply  because  the  results  of  labour 
have  become  connected  with  it,  or  the  value  of  other  land 
or  other  property  the  products  of  labour,  for  the  use  of 
which  labour  competes,  are  reflected  upon  it.  In  1620  the 
land  upon  which  the  city  of  Boston  stands  could  have  been 
bought  for  a  string  of  sea  shells;  in  1894  its  value  for  as- 
sessment as  property  for  taxation  was  probably  in  excess 

general  fund  of  knowledge  as  to  bear  practical  fruits ;  and  it  needs 
to  be  constantly  dwelt  upon,  set  forth,  reiterated,  and  explained, 
until  it  shall  become  a  common  possession  of  those  who  think." 
The  reason  why  more  attention  has  not  been  given  to  tliis  subject 
by  the  earlier  economists  has  been  assigned  to  the  fact  that  they 
drew  their  illustrations  from  a  very  primitiA'e  life,  where  the  bow 
and  spear  figured  prominently. — Addrrnf^.  American  SoGial  Science 
Association,  1893,  hy  F.  J.  Kincishnry,  LL.D. 


464    THE   THEORY  AND  PRACTICE  OP  TAXATION. 

of  $900,000,000.  But  in  both  instances  the  valuation  was 
determined  by  one  and  tlie  same  standard :  in  the  first, 
by  the  amount  of  labour  required  to  collect  and  string 
the  shells;  and  in  the  second,  by  the  amount  of  labour 
and  capital — which  is  the  result  of  labour — which  has 
been  embodied  in  the  land  or  become  connected  with  it. 
Take  away  the  labour  and  its  accumulated  results,  and 
the  site  of  Boston  will  be  worth  no  more  at  the  present 
time  than  it  was  in  1628,  when  William  Blackstone  first 
obtained  it. 

Analyze  next  the  alleged  property  in  bank  notes.  The 
coin  in  the  vaults  of  the  banks,  the  vaults,  the  building, 
the  books,  the  furniture,  and  other  physical  actualities — 
the  results  of  labour — employed  in  transacting  the  business 
of  banking,  are  the  real  property  of  the  bank.  The  bank 
stock,  so  long  as  the  bank  exists,  is  merely  a  right  to  receive 
dividends.  The  creation  of  a  bank  obviously  does  not  create 
any  property.  The  notes  discounted  by  the  bank  over  its 
counter  are  inchoate  titles  to  the  debtor's  property  or  to 
his  rights  to  property;  and  the  notes  issued  by  the  bank 
are  inchoate  titles  to  the  bank's  property  or  to  its  equitable 
rights  to  property.  The  bank,  apart  from  its  physical 
actualities  and  machinery,  is  simply  a  ledger  recording 
credits  and  debits.  But  credits  and  debits  are  only  con- 
venient forms  of  bookkeeping,  or  the  records  of  transfers 
of  property  and  of  rights,  titles,  and  interests  in  property 
pre-existing.  Credits  and  debits,  moreover,  stand  to  each 
other  in  the  relation  of  an  equation.  There  can  be  no  credit 
without  a  debit,  and  no  debit  without  a  credit ;  strike  out 
one  side  of  the  equation,  and  the  other  disappears  of  neces- 
sity. If  there  were  no  creditors  there  could  be  no  debtors, 
and,  vice  versa,  the  moment  debtors  cease  to  be  debtors, 
that  same  moment  creditors  cease  to  be  creditors.* 

Copyrights  and  patents  are  simply  legislative  enact- 
ments to  protect  pre-existing  property.  A  manuscript,  a 
painting,  or  an  invention  is  the  joint  product  of  physical 
and  intellectual  labour,  which  the  copyright  or  patent  right 
protects,  the  same  as  other  forms  of  law  protect  other  visible 
and  tangible  property  from  robbery  and  spoliation.      The 

*  The  Supreme  Court  of  Alabama  has  recently  decided  that 
when  a  bank  in  that  State  owns  real  estate  the  same  is  not  liable 
to  taxation  as  a  part  of  its  capital  stock. 


COPYRIGHTS  AS  PROPERTY.         455 

relation  which  these  instrumentalities  sustain  to  property 
is  clearly  indicated  by  asking  the  question,  whether  there 
can  be  such  a  thing  as  a  patent  granted  for  what  has  never 
been  reduced  to  a  physical  actuality;  or  a  copyright  given 
for  the  flight  of  fancy  of  a  poet  not  embodied  in  the 
materiality  of  a  manuscript  or  in  the  pages  of  a  printed 
book.  John  Milton  sold  Paradise  Lost  to  Samuel  Sim- 
mons, bookseller,  for  five  pounds  ready  money;  but  Gray's 
"  mute,  inglorious  Miltons,"  who  only  imagined  and  never 
wrote,  could  never  have  obtained  a  copyright  or  any  money 
oifer  whatever — no,  not  even  reputation — for  their  imagin- 
ings, though  for  all  that  the  world  knows  they  might  have 
been  infinitely  superior  to  the  Milton  who  became  glorious 
because  he  was  not  mute,  in  all  that  relates  to  mental  at- 
tainment. 

"  A  person  can  read  from  a  book,  can  quote  from  it,  use 
its  ideas  in  speaking  and  writing,  and  even  attempt  to  pass 
them  off  as  his  own,  and  he  will  find  no  legal  obstacle  to 
such  action.  But  the  moment  he  tries  to  duplicate  the 
material  form  in  which  the  ideas  appeared,  that  moment 
he  passes  from  the  realm  of  the  intangible  to  that  of  the 
tangible  " ;  for  the  book,  which  is  the  concrete  thing  in 
which  the  author  has  embodied  his  ideas,  is  an  entity,  and 
because  an  entity  representing  embodied  labour  is  prop- 
erty which  the  law  will  protect  to  the  owner,  and  can  also 
legitimately  tax,  if  it  will.  There  have  been  repeated  de- 
cisions by  the  courts  *  that  there  can  be  no  property  in 
ideas — until,  for  example,  an  author  through  a  copyright, 
or  an  inventor  through  a  patent,  has  put  his  ideas  in  such 

*  Some  years  since  an  action  was  brought  in  a  United  States 
court  hy  one  Kortenhaus  acrainst  the  American  Watch  Company, 
of  Waltham,  Mass.,  to  recover  royalties  on  an  improvement  in 
stem-Avindinff  watches  that  he  made,  and  which,  he  averred,  the 
defendants  had  put  to  use  without  his  consent  and  without  award- 
ing him  any  compensation  therefor.  The  plaintiff  swore  that  he 
had  submitted  his  invention  to  the  company's  inspection  with  the 
view  of  selling  it,  but  it  refused  to  piu'chase,  and  he  discovei-ed 
afterward  that  the  company  had  adopted  the  improvement,  and 
that  he  had  made  the  mistake  of  not  patenting  it.  The  court  dis- 
missed the  action,  and  riiled  that  there  was  no  right  of  property  in 
an  idea  as  an  idea,  and  that  it  could  only  be  made  property  by 
letters  patent.  Had,  however,  a  patent  been  secured  upon  the  im- 
provement, its  value  as  property  would  have  been  undoubtedly 
very  considerable. 


4:66    THE  THEORY  AND   PRACTICE  OP  TAXATION. 

tangible  form  that  the  Government  can  put  its  stamp  upon 
them. 

It  is  also  exceedingly  curious  to  note  how  Shakespeare, 
whose  range  and  accuracy  of  knowledge  were  so  wonderful, 
clearly  perceived,  and  as  clearly  expressed,  the  whole  essence 
of  modern  political  economy  and  jurisprudence  in  respect 
to  this  immediate  problem,  when,  in  the  following  lines 
from  A  Midsummer-Night's  Dream,  he  says : 

"  The  poet's  eye,  in  a  fine  frenzy  rolling, 
Doth  glance  from  heaven  to  earth,  from  earth  to  heaven, 
And,  as  imagination  bodies  forth 
The  forms  of  things  unknown,  the  poet's  pen 
Tvuns  them  to  shapes,  and  gives  to  airy  nothing 
A  local  habitation  and  a  name." 

In  other  words,  according  to  Shakespeare,  as  well  as  accord- 
ing to  political  economy  and  common  sense,  however  bril- 
liant may  be  the  imagination  of  the  poet  or  inventor,  he 
has  no  property  in  his  ideas  or  imaginings  until  he  has 
reduced  them  through  labour  to  an  actuality.  And  then 
the  value  of  the  actuality  produced  for  the  purpose  of 
exchange  or  sale,  provided  there  is  a  copyright  or  a  patent 
to  prevent  use  without  compensation,  will  be  just  in  pro- 
portion to  the  effectiveness  or  desirability  of  the  labour 
exerted  upon  or  embodied  in  it.  The  standard  for  measur- 
ing the  value  of  the  work  of  a  Shakespeare,  a  James  Watt, 
and  a  street  sweeper  is  one  and  the  same. 

Again,  an  annuity,  like  bank  stock,  is  a  right  to  re- 
ceive property,  the  result  of  previously  accumulated  labour, 
and  its  transfer  by  sale  or  bequest  is  simply  a  transfer  of 
an  equitable  right;  and  a  right  of  this  character,  in  turn, 
is  not  property,  but  a  title  to  pre-existing  property.  So, 
also,  in  respect  to  franchises,  which,  although  often  spoken 
of  and  regarded  as  property,  are  clearly  nothing  but  rights. 
Thus,  for  example,  a  franchise  of  a  railroad  is  simply  a 
right  to  operate  a  road  in  a  particular  manner ;  and  a  legis- 
lature can  not  and  does  not  create  a  railroad  by  creating 
or  granting  a  franchise.  At  the  same  time,  the  value  of  a 
physical  actuality  may  undoubtedly  be  increased  by  a  fran- 
chise which  gives  a  right  to  use  such  actuality  in  a  particu- 
lar way.  A  monopoly,  also,  like  a  franchise,  is  valuable, 
but  its  value  consists  in  the  fact  that  it  gives  to  certain 
persons  privileges  that  are  taken  from  others,  and  the 


TITLES  TO  PROPERTY.  467 

making  of  a  monopoly  no  more  creates  property  than  does 
the  making  of  a  franchise. 

Some  persons,  whose  opinions  are  worthy  of  respect, 
have  raised  a  point  in  discussing  this  question,  that  there 
is  a  distinction  to  be  recognised  between  property  and  capi- 
tal; and  that  both  in  law  and  political  economy  the  latter 
does  not  necessarily  conform  to  the  definition  that  has  been 
here  given  to  the  former.  But  can  there  be  such  a  thing 
as  capital  which  does  not  represent  a  physical  actuality 
in  the  sense  of  embodied  labour?  Capital  is  the  interest 
of  a  person  in  embodied  labour  over  and  above  his  debts, 
or  his  interest  in  legal  or  equitable  rights  to  embodied 
labour,  and  can  have  no  value,  and  is  merely  imaginary, 
except  it  has  the  right,  title,  or  power  to  command  em- 
bodied labour,  or  to  exercise  dominion  over  property  the 
result  of  labour.  All  that  we  labour  and  toil  for  is  era- 
bodied  labour.  We  will  not  give  our  labour  for  the  "  base- 
less fabric  of  a  vision,"  or  our  accumulated  labour  for  the 
dreamy  creations  of  a  Berkeley  or  the  imaginary  castles 
of  poets,  except  so  far  as  they  make  them  manifest  in 
material  forms  or  writings. 

By  some,  also,  the  forces  of  Nature  are  regarded  as 
property;  but  they  are  not  so  until  dominated  over  and 
subjugated  by  man;  and  then  only  do  they  acquire  value 
and    become    negotiable    and    subject    to    proprietorship. 
Gravity  and  electricity,  as  free  forces,  are  incapable  of  sale 
and  taxation ;  nor  can  they,  in  any  rational  view,  be  con- 
sidered as  property.     According  to  recent  decisions  of  the\ 
courts  of  the  United   States,  electricity  is  not   a  manu- 1 
factured  product,  and  electric-light  plants  do  not  manu- 1 
facture  it,  but  only  distribute  it. 

What  are  Titles  to  Property? — But  while  political 
economy  recognises  nothing  as  property  except  physical 
actualities,  the  law,  for  the  sake  of  convenience,  has  so  long 
treated  titles  as  conveying  the  same  ideas  as  propert}^  that 
the  profession  and  the  public  have  very  generally  come  to 
regard  the  two  as  equivalent  or  identical.  Consideration 
is,  therefore,  next  asked  to  this  point. 

Property  being  embodied  and  accumulated  labour,  it 
becomes  endowed,  in  all  places  where  the  rights  of  labour 
are  recognised,  with  the  attributes  and  incidents  of  titles  or 
evidence  of  just  ownership  or  possession — inchoate,  legal. 


468    THE  THEORY  AND   PRACTICE  OP  TAXATION. 

or  equitable — which  inhere  in  the  property,  follow  it,  and 
form  a  component  part  of  it  wherever  found.  The  fact 
that  the  ownership,  interest,  or  title  of  a  non-resident,  as, 
for  example,  a  bond  and  mortgage  title  to  his  debtor's 
property  in  another  state  or  country,  can  be  extinguished 
in  the  real  and  personal  property  of  the  debtor,  by  attach- 
ment or  other  process  of  law  in  the  state  where  the  debtor 
resides,  and  where  his  visible,  tangible  property  has  a  situs, 
also  leads  up  to  and  establishes  as  a  principle  of  law  that 
titles  or  incumhrances  are  connected  with  the  owner,  hut 
inhere  in  the  property,  where  the  property  is  actually  situ- 
ated, as  incidents,  form  a  part  and  are  inseparable  from  it, 
and  include  the  equitable  title  or  right  of  the  creditor  in  the 
debtor^s  unsold  and  unincumbered  property,  hut  are  not 
themselves  property.  Some  economists  befog  themselves  on 
this  subject,  as  before  shown,  by  first  defining  property  as 
anything  that  can  be  bought  and  sold,  and  then,  since  a 
title — as,  for  example,  a  deed — can  be  bought  and  sold, 
accept  the  inference  that  a  title  is  necessarily  property. 
But  let  us  analyze  this  definition  and  assumption.  The 
creditor  can,  without  doubt,  sell  and  deliver  a  deed  to  a 
farm,  but  what  is  sold  in  such  instances  is  the  farm,  in- 
cluding a  right — namely,  a  right  to  have  dominion  over 
it.  But  it  may  be  rejoined  that  a  right  of  dominion  is 
property.  Let  us,  therefore,  carry  the  analysis  a  little 
further.  If  a  farm  in  California  is  property  in  the  State 
where  it  is  and  where  it  is  taxed,  any  right  or  title  to  the 
same  farm,  held  in  New  York  or  England,  be  it  in  the 
nature  of  a  deed,  a  mortgage,  a  partnership  interest,  or 
any  other  form  of  title,  can  not  be  the  property;  for  the 
same  thing  certainly  can  not  be  property  in  two  separate 
States  and  jurisdictions,  and  in  two  distinct  forms  and 
manifestations,  at  the  same  time.  On  the  other  hand,  if  it 
be  assumed  that  the  title  to  the  farm  is  the  property,  and, 
as  such,  can  be  rightfully  taxed  where  it  (the  title)  is,  then 
it  stands  to  reason  that  the  subject  of  the  title,  the  farm 
in  California,  ought  not  to  be  also  regarded  as  property 
and  taxed  in  New  York  or  England.  In  other  words,  if 
the  title  to  the  farm  is  property,  then  the  farm  is  not  really 
in  California  at  all  (unless  the  owner  of  the  title  resides 
there),  but  goes  out  of  that  State  in  the  pocket  of  the  in- 
dividual who  walks  off  with  the  title  to  it.     We  have  all 


DEEDS  AS   PROPERTY.  469 

heard  of  si;ch  concentration  of  meat  that  all  that  is  valu- 
able in  an  ox  for  food  can  be  put  into  a  quart  can;  but 
such  a  concentration  of  property  as  is  here  supposed  is 
something  much  more  remarkable;  and  admits  of  a  man 
having  a  drove  of  oxen  in  his  hand,  ten  acres  of  woodland 
in  his  hat,  a  church  with  a  steeple  in  one  coat  pocket,  and 
a  four-story  brick  block  and  a  mill  privilege  in  the  other.* 
It  is  also  important  to  note  that  while  a  deed  to  realty, 
properly  executed  and  recorded,  is  regarded  as  the  highest 
form  of  title,  we  have  the  decision  of  the  United  States 
Supreme  Court  (Fletcher  vs.  Peck.  6  Cranch,  87)  that  a 
deed  is  but  an  "  executed  contract "  on  the  part  of  the 

*  As  the  promulgation  of  ideas  that  are  not  in  harmony  with 
long-accepted  lines  of  thought  generally  provokes  controversy  and 
expressions  of  dissent,  which  in  turn  often  result  in  promoting  self- 
education,  the  author,  with  a  view  of  furthering  such  a  result, 
would  here  ask  attention  to  two  letters,  voluntarily  written,  when 
his  views  respecting  the  relations  of  titles  to  property  were  origi- 
nally advanced  by  him  (some  years  since)  as  a  contribution  to 
economic  science ;  the  first  written  by  an  eminent  professor  in  one 
of  the  leading  colleges  of  New  England;  and  the  second  by  an 
eminent  merchant  of  New  York,  whose  knowledge  of  economics 
was  mainly  the  result  of  a  long  experience  in  practical  business 
and  financial  transactions  of  great  magnitude. 

No.  1.  "My  Dear  Mr.  Wells: 

"  You  are  misled  by  the  term  titles,  and  are  not  only  wrong, 
but,  what  is  worse,  are  wrong  in  a  superficial  way. 

"  The  real  question  relates  to  the  nature  of  credit. 

"  I  buy  a  piece  of  land  for  five  hundred  dollars  and  give  my 
simple  note  for  value  received.  The  title  to  my  land  is  my  deed. 
My  note  has  thereafter  no  connection  whatsoever  with  the  land, 
but  it  has  value  nevertheless.  The  bank  buys  it  as  a  piece  of 
property  and  holds  it  till  maturity  for  the  sake  of  the  difference 
between  its  face  and  its  price — i.  e.,  for  the  discount.  Your  philos- 
ophy does  not  account  for  this  proceeding;  mine  does. 

"  Your  assertion  is  that  things  of  value  must  have  a  '  physical 
quality.'  I  deny  that  utterly;  nothinq  has  value  by  means  of  a 
mere  physical  quality.  Does  not  my  annual  service  to  the  college 
have  a  value?  I  get,  at  any  rate,  twenty-five  hundred  dollars  a 
year  for  it.     I  render  no  '  physical  quality  '  whatsoever. 

"  My  note  is  worth  nearly  or  quite  five  hundred  dollars,  but 
it  is  not  a  title  to  anything;  it  is  a  claim  on  me.  So  are  all 
credits — claims  merely,  not  titles  at  all. 

"  You  say  if  such  things  are  value  we  might  multiply  values 
indefinitely.  No ;  because  we  can  not  sell  them  indefinitely.  So  far 
as  we  can  sell  we  make  values.  Even  land  and  merchandise  won't 
sell  notes,  with  all   their  physical  quality.     Physical  quality  has 


/ 


4T0    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

grantor,  not  to  resume  the  right  in  the  thing  granted;  and 
if,  therefore,  a  State  can  tax  extra-territorial  contracts,  it 
may  tax  her  citizens  on  deeds  of  land  in  other  States. 

This  analysis  of  the  meaning  of  property,  from  both 
an  economic  and  legal  point  of  view,  might  be  prosecuted 
with  interest  and  profit  to  a  much  greater  extent ;  but  from 
what  has  been  presented  it  would  seem  clear  that  nothing 
can  not  be  something;  or,  in  other  words,  that  property  is 
always  a  physical  actnaUty,  which  has  become  valuable  or 
property  by  some  form  of  labour,  and  can  not  be  created  by 
mere  paper  documents,  except  to  the  extent  of  the  value  of 
the  paper  and  the  writing  or  printing  upon  it.  Or,  in  other 
words,  a  title  to  property,  a  representative  of  property,  can 
no  more  be  property  than  a  shadow  can  be  a  substance :  and 
if  this  conclusion  be  true,  then  it  would  seem  to  follow, 
of  necessity,  that  the  act  of  making  debts,  bonds,  verbal 
or  written  contracts,  notes,  book  accounts,  mortgages,  ware- 
house receipts,  titles,  certificates  of  stock,  or  any  form  of 
salable  or  traiisfcrable  rights,  is  not  a  creation  or  produc- 
/  ^  tion  of  any  new  property,  but  simply  an  exchange,  by  eon- 
Qvj  tract  or  operation  of  law,  of  the  rights  and  titles  of  parties 
in  pre-existing  property ;  and  that  any  tax  on  any  of  these 
<^  rights  or  titles  is  only  another  form  of  burdening  the  prop- 
nothing  to  do  with  it.  The  only  possible  test  of  property  is  sale. 
The  reason  why  credits  are  more  limited  in  their  use  than  com- 
modities and  services  is  simply  that  they  relate  to  future  time, 
which  is  less  certain  than  past  and  present  time. 

"  Yours  truly, ." 

With  a  desire  to  obtain  an  opinion  on  this  interesting  economic 
question  from  the  merchant,  the  foregoing  note  was  referred  to 
his  consideration  by  permission,  and  elicited  from  him  the  follow- 
ing rejoinder: 

No.  2.  "  Professor  seems  to  ignore  the  fact  that  debtors 

hold  all  their  property  which  is  not  mortgaged  or  encumbered,  as 
trustees  to  pay  their  creditors  generally,  and  it  is  this  same  prin- 
ciple which  gives  vahie  to  unsecured  credits. 

"  But  the  professor  says,  '  So  far  as  we  can  sell  we  make  values.' 
Does  he  mean  that  a  counterfeit  which  is  so  good  that  it  can  be 
sold  is  a  creation  of  value?  Would  a  credit  sell  at  all  if  it  was 
not  an  inchoate  right  to  the  unsold  and  unencumbered  property 
of  the  debtor?  Of  what  value  is  a  claim  on  a  man  if  the  claimant 
has  no  rights  on  the  debtor's  property?  Such  a  claim  would  be 
no  better  than  a  claim  on  the  northeast  wind." 


TITLES  INSEPARABLE   FROM  THINGS.  471 

erty  which  is  the  subject  of  the  rights  or  titles.  But  some, 
in  answer  to  the  assertion  that  rights,  debts,  and  titles 
are  not  property,  for  if  they  were  we  might  make  property 
by  making  rights  and  titles,  might  reply,  "  But  we  do  make 
property  in  that  way  every  day."  But  we  can  not  do  this 
indefinitely  because  we  can  not  sell  the  title  indefinitely; 
and  why  not?  Let  us,  therefore,  stop  and  think  about  it, 
and  ask  ourselves  why  we  can  not  sell  titles  and  credits 
indefinitely.  We  can  sell  property  in  the  sense  of  em- 
bodied labour  indefinitely.  Why  not  titles  and  credits? 
The  answer  is  simply  that  when  we  buy  a  title  or  credit 
we  pay  for  and  in  a  legal  and  economic  effect  buy  the 
physical  actuality,  or  right  of  dominion  over  it,  which  the 
credit  or  title  represents,  and  nothing  more.  The  moment 
one  undertakes  to  sell  titles  or  credits  in  excess  of  or  sepa- 
rate from  the  embodied  labour  they  are  supposed  to  repre- 
sent, we  call  the  act  swindling.  Fancy  a  member  of  the 
legal  profession  appearing  in  court  to  defend  such  a  per- 
son for  selling  a  title,  separate  from  an  actuality,  on  the 
ground  that  such  a  title  was  property  because  he  was  able 
to  sell  it,  and  that  somebody  not  keen  was  persuaded  to 
buy  it !  Would  the  plea  caveat  emptor  avail  in  such  a 
transaction  ? 

In  other  words,  when  the  title  does  not  inhere  in  the 
physical  actuality,  we  give  it  a  bad  name,  and  the  most 
imaginative  do  not  call  it  property.  A  title  which  is  really 
a  title  is  never  suspended  or  in  abeyance.  If  a  thing  is 
embodied  labour,  some  one,  or  a  number  of  persons,  has 
some  form  of  title  or  dominion  over  it,  and  the  title  is 
inseparably  allied  to  the  thing;  and  therefore  the  sale  of 
the  title  is*  the  sale  of  the  thing,  because  they  are  one  and 
inseparable.  Embodied  labour,  therefore,  embodies  all 
forms  of  title  to  the  embodied  labour.  Credits  and  titles 
of  themselves  have  no  value,  and  separated  from  the  things 
they  represent,  they  can  not  honestly  be  sold  at  all.  Who 
will  buy  them?  We  know  the  character  of  the  men  who 
will  sell  them,  and  their  representatives  will  always  be 
found  in  penal  institutions. 

If  some  other  name  be  given  to  embodied  labour  than 
property,  it  will  not  diminish  its  power  to  satisfy  human 
wants ;  and  if,  on  the  other  hand,  we  call  credits  and  titles 
property,  they  can  not  be  eaten,  or  made  of  themselves  in 


472    THE   THEORY  AND  PRACTICE  OF  TAXATION. 

any  form  to  satisfy  wants,  but  they  can  represent  things 
which  will  satisfy  wants.  It  is  interesting  also  to  note 
that  when  attempts  have  been  made  to  claim  salvage  for 
the  recovery  of  bills  of  exchange,  or  other  titles  of  prop- 
erty, from  wrecks,  the  courts  have  decided  that  salvage 
in  such  cases  is  not  allowable;  and,  therefore,  have  prac- 
tically held  that  credits  and  titles  are  not  property,  but 
mere  rights  to  property,  and  in  the  case  of  negotiable  in- 
struments, when  destroyed  by  fire  or  otherwise,  the  right 
under  the  destroyed  instrument  still  remains,  and  can  be 
enforced  in  courts  when  identified. 

Actualities,  not  Fictions,  the  Legitimate  Sub- 
ject OF  Taxation. — Enact  such  laws,  also,  in  respect  to 
taxing  titles  as  we  may,  experience  will  prove  that  taxes 
can  not  be  practically  levied  on  imaginary  things,  or  legal 
fictions,  because  it  is  some  physical  actuality,  in  the  sense 
of  embodied  labour,  that  must,  after  all,  and  in  the  end, 
pay  all  taxes.  Also,  "  taxes  are  generally  demanded  in 
money,  and  any  tax  law  will  be  understood  to  require  money 
when  a  different  intent  is  not  expressed"  (Judge  T.  M. 
Cooley).  If  Legislatures  have  the  power  of  creating  fiat 
property — that  is,  imaginary  or  fictitious  property — it  is 
beyond  their  power  to  make  it  pay  taxes,  for  nothing  less 
than  omnipotence  can  make  something  out  of  nothing. 

On  the  other  hand,  let  us  consider  for  a  moment  the 
converse  of  this  proposition — namely,  that  titles  are  prop- 
erty, and,  as  such,  ought  not  to  he  exempt  from  taxation. 
If  this  is  so,  then  it  would  seem  to  follow  that,  by  making 
titles,  we  can  make  property;  and  that  when  a  man  mort- 
gages his  farm  for  ten  thousand  dollars,  the  community 
have  ten  thousand  dollars'  worth  of  real  estate  and  ten 
thousand  dollars'  worth  of  personal  property,  where,  before 
the  execution  of  the  mortgage,  there  was  only  the  specified 
value  of  the  real  estate.  On  the  other  hand,  when  the  mort- 
gage is  paid  off,  ten  thousand  dollars'  worth  of  personal 
property  is  destroyed,  and  by  a  parity  of  reasoning  the 
State  must  be  to  that  extent  the  poorer.  A  clear  compre- 
hension, then,  of  the  facts,  that  property  is  embodied 
labour ;  that  property  can  alone  suffice  to  pay  taxes ;  that 
rights,  titles,  and  credits  are  but  the  representatives  of 
property;  and  that,  having  subjected  the  property  to  taxa- 
tion, there  is  no  sense  or  equity  in  again  assessing  its 


ACTUALITIES  AND  TAXATION.  473 

representative,  will  at  once  divest  the  problem  of  taxation 
from  many  embarrassments  which  now  seem  to  invest  it, 
greatly  simplify  it,  and  go  far  toward  the  determination  of 
sound  and  fixed  tax  principles. 

Important  decisions  touching  the  question  here  under 
consideration  that  have  recently  been  rendered  by  courts  of 
high  repute  are  also  here  worthy  of  notice.  Thus,  in  Cali- 
fornia, the  Supreme  Court  of  the  State  has  had  before  it 
the  vexed  question  of  taxation  of  mortgages,  and  the 
judges  have  decided,  in  accordance  with  justice  and  com- 
mon sense,  that,  as  mortgages  do  not  in  any  way  increase 
the  body  of  wealth  in  a  community,  any  tax  laid  upon  them 
is  laid  upon  a  fictitious  value;  is  in  so  far  an  imposition 
upon  the  taxpayer,  and,  inasmuch  as  it  represents  a  second 
tax  on  real  estate  already  taxed  in  the  hands  of  the  owner, 
is  "  double  "  taxation  within  the  meaning  of  that  term  in 
the  Constitution  of  California  and  other  States. 

In  1875  the  following  case  came  before  the  Supreme 
Court  of  New  York  (General  Term)  under  the  following 
circumstances :  The  administrators  of  a  citizen  being  taxed 
by  the  proper  tax  authorities  of  the  State  for  a  large 
amount  of  personal  property,  put  in  a  schedule  of  personal 
assets  consisting  mainly  of  certificates  of  stock  in  various 
railroad  and  mining  companies,  with  a  plea  for  abatement. 
The  court,  after  consideration,  through  Noah  Davis,  P.  J., 
rendered  the  following  decision :  "  We  are  of  the  opinion 
also  that  the  commissioners  erred  in  including  in  their 
assessment  the  stocks  of  corporations  created  by  and  under 
the  laws  of  other  States.  Such  corporations  are  taxable, 
and  we  must  presume,  in  the  absence  of  proof,  that  taxes 
in  their  respective  home  States  are  duly  assessed  and  col- 
lected upon  their  capital  stock  or  property.  The  stocks  in 
such  corporations,  held  by  individuals  here,  are  simply 
representatives  of  capital  or  property  employed  in  business 
in  other  States,  the  title  of  which  is  vested  in  and  controlled 
by  the  artificial  person  created  by  and  residing  in  such 
States.  They  represent  an  interest  which  is  or  may  be- 
come a  membership  in  the  corporation  and  evidence  of  a 
right  to  participate  in  divided  profits  and  in  the  ultimate 
dividend  of  surplus  after  the  payment  of  debts  and  obliga- 
tions of  the  corporation.  The  stock  certificates  are  not 
themselves  the  property,  but  are  evidences  of  the  rights 
31 


474    THE  THEORY  AND   PRACTICE  OF  TAXATION. 

just  mentioned;  to  be  possessed,  enjoyed,  and  enforced 
under  and  in  confoi-mity  with  the  laws  of  the  State  which 
created  tlie  body  corporate." 

Tlie  views  thus  expressed  respecting  the  inconsistency 
and  undesirability  of  directly  taxing  titles,  credits,  obliga- 
tions of  indebtedness,  and  instrumentalities  of  exchange 
are  so  generally  and  thoroughly  accepted  by  the  statesmen, 
financiers,  and  economists  of  Europe,  that  no  recognition 
of  this  form  of  taxation  can,  it  is  believed,  be  found  in  any 
of  their  fiscal  systems.  In  England  the  very  idea  would 
be  scouted ;  and  in  France,  where  the  need  of  great  reve- 
nues is  most  imperative,  and  resort  has  been  had  to  almost 
every  other  device  and  expedient  for  collecting  contribu- 
tions from  its  people,  the  taxation  of  titles  and  credits  has 
never  been  contemplated.  Some  years  since  (1879),  when 
the  State  of  California  adopted  a  new  Constitution,  and, 
in  virtue  of  the  statutes  subsequently  enacted  under  it, 
made  subject  to  additional  taxation  bonds,  moneys,  promis- 
sory notes,  certificates  of  indebtedness,  and  shares  of  stock 
in  corporations  otherwise  taxed,  the  utter  absurdity  of  such 
action  was  thus  strikingly  demonstrated  in  one  of  the  San 
Francisco  papers  by  the  following  humorous  illustrations : 

"  A  has  a  horse ;  B  has  nothing,  but  is  honest  and  in- 
dustrious. B  buys  A's  horse  and  gives  his  promissory  note 
for  one  hundred  dollars.  The  horse  previously  taxed  as 
property  in  A's  hands  is  now  taxed  as  property  in  B's 
hands,  and  A  is  taxed — just  as  much  as  he  was  before — on 
B's  note,  which  is  property  also.  That  is  to  say,  the  new 
Constitution  holds  that  by  a  mere  stroke  of  his  pen,  B, 
who  has  nothing,  and  can  give  himself  nothing,  can  in- 
stantaneously create  as  much  property  for  others  as  others 
may  happen  to  think  that  he  will  some  day  be  able  to 
acquire.  Truly  the  performance  of  the  man  who  causes 
two  trees  to  grow  where  but  one  grew  before  is  of  so  little 
comparative  benefit  that  he  might  be  justly  censured  for 
a  sin  of  omission. 

"  Let  us  suppose  that  B  had  given  not  a  written  but 
an  oral  promise.  Ought  not  A  to  be  taxed  on  that?  If 
Hot,  why  not?  Because  an  oral  promise  is  not  an  evidence 
of  debt  ?  not  a  '  credit '  ?  *     But  how  if  there  were  wit- 

*  Promises,  according  to  Professor  McLeod,  are  property. 


A  CALIFORNIAN  EPISODE,  475 

nesses?  Oral  promises  are  credits,  however;  nay,  even 
implied  promises  are.  You  have  to  pay — the  courts  will 
make  you  pay — your  tradesman's  account  whether  you  have 
ever  passed  your  word  or  not. 

"  Now  a  '  credit,'  be  it  promissory  note,  mortgage, 
certificate  of  deposit,  or  what  you  will,  is  not  only  not 
property,  but  is  proof  that  the  holder  has  parted  with  prop- 
erty that  he  once  had.  His  paper  credits,  which  merely 
certify  that  in  consideration  of  certain  advantages  (in- 
terest, freedom  from  cares  of  management,  etc.)  he  has 
surrendered  his  property  to  another,  have  no  function  but 
that  of  enabling  him  at  some  future  time  not  to  resume 
his  own,  for  it  is  no  longer  his,  but  to  acquire  its  equiva- 
lent from  the  present  owner.  The  more  a  man  has  of  these 
things,  which  it  is  proposed  to  tax  as  property,  the  poorer 
he  is — not  necessarily  poorer  than  a  man  with  none,  but 
poorer  than  himself  was  before  he  got  them.  It  was  only 
by  surrendering  them  that  he  can  become  again  as  wealthy 
as  he  was. 

"  Is  he  then  to  escape  taxation,  living  at  his  ease  on  his 
interest,  while  the  man  who  pays  it  bears  the  expense  of 
government  for  both?  Let  us  see  if  under  the  present 
system  the  latter  does  anything  of  the  kind.  X  wants  a 
thousand  dollars  of  Z,  for  which  he  can  afford  to  pay, 
say,  sixty  dollars  a  year.  But  if  the  State  government  is 
going  to  exact  from  him  ten  dollars,  he  can  afford  to  give 
Z  but  fifty,  with  which  that  person  must  be  content,  or 
X  will  either  get  the  money  from  another  or  not  take  it 
at  all.  It  is  clear,  therefore,  that  the  lender  really  pays 
the  tax,  the  borrower  being  unaffected  directly;  what  he 
pays  to  the  State  he  would  otherwise  have  to  pay  to  thej 
lender.  Indirectly  he  is  affected  thus :  Taxation  of  the 
principal,  by  reducing  the  interest,  reduces  also  the  volume 
of  borrowable  money  by  driving  a  part  of  it  into  more 
profitable  investment,  and  the  scarcity  so  created  tends 
to  restore  the  rate  of  interest,  the  cause  thus  counteracting 
its  own  effect,  as  the  slackening  in  the  speed  of  a  steam 
engine  is  the  agent  that  increases  its  velocity. 

"  Eeverting  to  the  matter  of  the  horse,  we  find  that 
quadruped  in  the  possession  of  B  and  a  note  for  one  hun- 
dred dollars  in  the  hands  of  A.  Relying  on  B's  payment 
of  the  note,  A  purchases  a  hundred  dollars'  worth  of  fiour 


476     THE   THEORY  AND   PRACTICE   OF   TAXATION. 

from  C,  giving  his  note.  C  knows  that  A  is  good  for  the 
amount,  and  gives  his  own  note  for  a  hundred  dollars  for 
a  barrel  of  whisky  to  D,  who  then  feels  rich  enough  to  pur- 
chase a  thousand  cigars,  at  ten  dollars  a  hundred,  from  E, 
satisfying  him  with  a  note.  At  the  end  of  a  month  D's  hos- 
pitable friends  have  burned  all  that  gentleman's  cigars ;  C, 
in  one  protracted,  solitary  revel,  has  gone  through  his  bar- 
rel of  whisky  like  a  rat  through  a  water  pipe;  A's  family 
and  retainers  have  consumed  his  flour  like  a  flame  in  flax; 
and  B's  charger,  broken  by  the  weight  of  the  financial  su- 
perstructure reared  upon  his  patent  person,  lies  deadwise 
on  the  plain,  with  daisies  at  his  head  and  at  his  feet.  But 
he  has  left  a  legacy  of  taxable  '  solvent  credits '  that  does 
honour  to  his  memory  better  than  a  monument  of  brass, 
and 

"  *  Nothing  beside  remains  round  that  colossal  wreck !  ' 

"  Working  for  a  dead  horse  is,  however,  proverbially 
disheartening,  and  it  is  some  years  before  B  has  put  by 
enough  money  to  discharge  his  debt  to  A,  and  has  thereby 
rendered  him  unable  to  pay  C,  whose  habit  of  being 
supinely  drunk  has  made  the  expensively  befriended  D 
whistle  in  vain  for  the  wherewithal  to  pay  E.  But  finally 
B  hands  a  hundred  dollars  to  A,  who  hands  it  to  C,  who 
hands  it  to  D,  who  hands  it  to  E ;  and  four  hundred  dol- 
lars' worth  of  taxable  property,  on  which  the  government 
of  this  State  had  been  living,  like  St.  Simon  Stylites  on 
his  capital,  vanishes  into  thin  air;  for  the  notes  go  to  the 
kitchen  stove,  and  the  new  Constitution  made  no  provision 
for  taxing  the  ashes. 

"  Charles  Young  takes  a  pig  in  payment  for  his  paper 
— like  for  like.  Being  a  Jew,  Mr.  Young  has  conscientious 
scruples  against  eating  pork,  so  he  sells  his  pig  to  a 
butcher,  taking  his  note.  The  butcher,  finding  the  ani- 
mal more  than  usually  intelligent,  thinks  it  would  be 
wrong  to  hide  the  light  of  its  political  sagacity  under  a 
bushel  of  salt,  and  sells  it  alive  to  Clitus  Barbour  to  repre- 
sent that  statesman,  who  helped  to  launch  the  new  Con- 
stitution. Clitus  gives  his  note  for  the  pig.  Becoming 
jealous  of  its  rivalry,  he  sells  it  to  Governor  Kearney  (tak- 
ing his  note),  whose  parlor  it  graces  for  a  season,  but, 
being  detected  in  an  indiscretion,  the  Governor  sells  it  to 


MONEY   PROPERTY.  477 

General  Howard,  who  gives  his  note.  General  Howard 
wants  this  pig  to  write  letters  favouring  the  new  Con- 
stitution; but,  as  it  scorns  to  prostitute  its  intellect  that 
way,  its  less  scrupulous  owner  parts  with  it  to  the  con- 
gregation of  Metropolitan  Temple,  whose  pulpit  it  now 
fills,  they  giving  their  note  and  a  benediction. 

"  The  foregoing  pig  is  now  represented  by  five  promis- 
sory notes  and  a  benediction  not  taxed.  None  of  these 
notes  bear  interest,  nor  are  they  of  any  benefit  to  their 
holders  except  as  they  may  enable  them,  at  a  stated  time, 
to  get  something  of  the  same  value  as  something  previously 
renounced.  The  various  notes  make  a  trail  of  papers  like 
that  left  by  the  '  hare '  in  the  boys'  game  of  '  hare  and 
hounds.'  Now  comes  the  assessor  under  the  new  Consti- 
tution, and,  in  obedience  to  a  righteous  provision  taxing 
property  used  for  religious  purposes,  assesses  that  porker 
in  the  bosom  of  the  church.  Then  he  strikes  the  paper 
trail  extending  out  through  secular  spaces  into  an  editorial 
office,  and,  having  assessed  the  grunter  where  it  is,  he  again 
assesses  it  where  it  was  last,  and  again  where  it  was  the 
time  before,  and  so  on  through  the  whole  series,  until  that 
not  very  valuable  flitch  of  bacon,  which  has  '  dragged  at 
each  remove  a  lengthening  chain '  of  '  solvent  credits,'  has 
been  the  innocent  cause  of  six  payments  into  the  State 
treasury.  Beyond  Mr.  Young  the  assessor  does  not  trouble 
himself  to  go,  for  on  the  ranch  of  a  granger  who  is  so 
intelligent  as  to  exchange  pigs  for  his  papers  the  pachy- 
derm's trail  consists  of  tracks  in  the  mud,  and  these  the 
new  Constitution  neglected  to  declare  to  be  property." 

Money  Property. — But,  after  all,  says  some  objector, 
"notwithstanding  your  many  and  plausible  arguments — • 
your  statement  that  all  the  world  except  the  United  States 
have  done  away  with  the  old,  atomic,  inquisitorial  system 
of  taxation — I  do  not  like  your  proposed  reforms,  and  for 
the  reason  mainly  that  they  exempt  '  money  property ' !  '* 
It  is  most  important,  therefore,  to  inquire  what  is  "  money 
property,"  and  also  its  relations  to  local  taxation. 

All  capital  or  property  is  accumulated  labour,  labour 
being  the  source  of  all  property.  Hence  any  attempt  to 
excite  prejudice  against  capital  or  property,  or  to  attack 
either,  is  an  attack  upon  labour  itself. 

"  Moneyed  property  "  is  generally  understood  to  mean 


478  THE  THEORY  AND  PRACTICE  OP  TAXATION. 

evidences  of  debt,  which  are  not  in  a  strict  sense  property ; 
but  rights  to  property,  or  assignments  of  property,  accord- 
ing to  the  amount  of  interest  of  the  creditor. 

Wpiat  is  a  Mortgage? — A  mortgage  may  be  defined 
to  be  a  species  of  conveyance  of  property — generally  real 
estate — for  the  security  of  a  debt,  generally  created  by  a 
loan  of  money,  and  can  not  be  regarded  as  a  complete,  but 
rather  a  conditional  or  quasi-title  of  the  property  covere'd 
by  the  conveyance.  It  is  not  so  much  property  as  a  deed; 
and  neither  is  property  except  to  the  extent  of  the  value 
of  the  paper  and  the  labour  of  writing  or  printing  it, 
and  still  both  are  very  valuable  as  conveying  rights  to 
property.  The  property  is  the  real  estate  conveyed  or 
mortgaged,  and  a  tax  on  the  land  and  another  tax  on  the 
deed,  or  a  tax  on  the  land  and  another  tax  on  the  mort- 
gage which  covers  the  land,  will  in  effect  be  a  double  tax 
on  the  land.  This  tax  may  be  made  a  quadruple  tax: 
first  on  the  land,  then  on  the  deed  of  the  land,  then  on 
the  mortgage  which  is  on  the  land,  and  then  on  the  lease 
which  the  landlord  may  grant  to  the  tenant. 

The  following  curious  instance  of  hardship  in  taxing 
mortgages  actually  occurred  in  one  of  the  counties  of  cen- 
tral Xew  York  under  the  existing  system :  A  worthy  farmer 
and  his  wife,  finding  themselves  becoming  incapacitated 
through  age  from  taking  practical  care  of  their  little  farm, 
sold  it  for  five  thousand  dollars,  and  allowed  the  pur- 
chase money  to  remain  in  the  form  of  a  mortgage,  with 
the  expectation  of  living  on  the  interest  paid  annually  by 
the  purchaser  from  the  profits  of  the  farm.  The  town 
being  very  small,  the  fact  of  the  sale  and  the  considera- 
tion paid  became  known  to  every  one,  and  the  assessors 
were  compelled,  in  opposition  to  their  usual  practice,  to 
tax  the  old  man  to  the  full  amount  of  the  mortgage,  as 
personal  property.  But  the  year  in  which  this  was  done 
happened  to  be  a  year  in  which  the  town,  anxious  to  avoid 
a  draft  of  men  for  the  army,  to  which  the  old  man  was 
not  liable,  put  up  the  rate  of  taxation  to  more  than  the 
legal  rate  of  interest,  in  order  to  provide  sufficient  money 
to  purchase  recruits.  The  result  was  that  the  poor  old 
man  and  his  wife  found  that  not  only  was  all  their  in- 
come from  the  mortgage  swept  away  by  the  tax  collector, 
but  they  were  even  obliged  to  go  out  for  days'  work,  in 


TAXATION   OF  INDEBTEDNESS.  4^9 

order  to  pay  a  balance  of  taxation  and  provide  means  of 
support ;  and  this,  too,  while  the  identical  farm  for  which 
the  mortgage  was  given  was  taxed  at  one  fifth  its  true 
value,  and  other  investments  of  other  citizens  of  an  in- 
visible and  intangible  character  undoubtedly  escaped  taxa- 
tion altogether.     And  this  we  call  equality  in  taxation. 

To  Tax  Indebtedness  is  to  Tax  the  Borrower. — 
If  any  one  doubts  that  a  tax  on  indebtedness  is  a  tax  upon 
the  borrower,  or  the  property  which  the  indebtedness  covers, 
that  question  can  be  easily  solved  by  an  honest,  uniform 
tax  on  all  State,  county,  town,  and  city  bonds  hereafter 
issued,  by  making  them  all  subject  to  an  annual  tax  of 
one,  two,  or  more  per  cent,  and  by  providing  that  the 
tax  shall  be  deducted  at  the  time  of  the  payment  of  the 
interest.  Is  there  any  one  who  believes  that  these  bonds 
will  sell  in  the  market  at  the  same  high  rate  that  they 
would  command  if  by  law  they  were  free  from  taxation? 

We  can  also  test  the  effect  of  an  honest,  uniform  tax 
upon  mortgages  by  providing  that  mortgages  hereafter 
made  shall  operate  to  reduce  for  assessment  the  valuation 
of  the  land  mortgaged  to  the  amount  of  the  mortgage,  and 
that  the  mortgagor  shall  pay  the  tax  on  the  mortgage, 
and  deduct  the  tax  from  the  principal  or  interest,  when 
paid  to  the  mortgagee.  But  who  believes,  under  such  a 
law,  that  any  money  would  be  loaned  at  the  legal  rate  of 
interest  ? 

A  somewhat  curious  piece  of  practical  evidence,  in  sup- 
port of  the  truth  of  the  above  position,  in  respect  to  the 
taxation  of  mortgages,  has  been  afforded  by  an  experi- 
ence of  New  Jersey.  This  State  exempted,  in  1869,  all 
mortgages  from  taxation  in  certain  of  her  counties  and 
cities  which  lie  contiguous  to  New  York  city;  but  this 
legislation,  although  operating  to  draw  capital  away  from 
New  York  and  into  New  Jersey,  was  not  primarily  effected 
for  any  such  reason,  but  was  brought  about  in  this  wise: 
New  Jersey,  in  the  first  instance,  enacted  an  honest,  uni- 
form law  of  taxing  mortgages,  and  one,  moreover,  which 
could  with  the  utmost  certainty  be  executed,  and  similar 
in  principle  to  that  above  suggested ;  namely,  that  the 
person  giving  the  mortgage  should  pay  the  tax  on  it,  and 
deduct  the  tax  from  the  principal  or  interest  in  settling 
with  the  creditor.    The  result  was  that  all  mortgages  fall- 


480    THE  THEORY  AND   PRACTICE  OF  TAXATION. 

ing  due  were  immediately  foreclosed,  and  as  no  new  loans, 
moreover,  could  be  made,  the  inhabitants  of  the  growing 
counties  near  the  city  of  New  York,  wishing  to  borrow 
money  on  land,  or  to  sell  land,  found  themselves  in  an 
uncomfortable  position;  so  much  so,  that  if  the  law  taxing 
mortgages  in  this  section  of  New  Jersey  had  not  been 
promptly  repealed  by  the  Legislature,  the  issue  would  soon 
have  become  a  predominant  one  in  the  State  elections; 
and  hence  the  explanation  of  one  of  the  most  curious 
statutes  in  the  history  of  American  legislation  which  made 
one  tax  law  for  one  part  of  the  State  and  another  and  a 
different  one  for  the  remainder.*  But  the  point  of  chief 
interest  in  respect  to  this  whole  tax  experience  to  which 
attention  should  be  especially  directed,  is,  that  it  did  not 
take  the  citizens  of  New  Jersey  a  great  length  of  time  to 
find  out  that  a  borrower  of  money  on  a  mortgage  paid 
the  tax,  and  that  the  lender  was  the  tax  collector,  and  only 
paid  his  part  of  a  diffused  tax,  as  all  other  persons  living, 
consuming,  buying,  or  selling  in  the  State  must  pay;  and 
that  if  the  borrower  could  not  legally  pay  the  lender  a  rate 
equal  to  other  net  profits  of  investments,  he  could  not 
borrow.  A  little  experimental  legislation  in  other  States 
will,  therefore,  effectually  explode  the  vague  theory  that 
taxes  uniformly  levied  do  not  diffuse  themselves ;  and  al- 
though it  is  true  that  the  persons  or  property  primarily 
taxed  do  not  charge  the  entire  tax  over  to  others,  this 
very  fact  nevertheless  shows  that  the  tax  is  diffused  with 
absolute  equality  upon  the  persons  who  originally  may 
pay  the  tax,  and  upon  those  who  finally  bear  their  por- 
tion of  it. 

Loans  on  Mortages  prohibited  in  Eome. — Momm- 
sen,  in  his  History  of  Eome,  states  that  at  one  period  the 
lending  of  money  in  that  country  on  mortgages  was  pro- 
hibited, and  it  is  apparent  that  a  uniform  taxation  of 

*  "  And  all  mortgages  upon  estates,  chattels,  or  personal  prop- 
erty, taxable  by  law  within  said  counties  of  Hudson,  Union,  Essex, 
and  the  city  of  Brunswick.  Middlesex  County,  and  the  county  of 
Passaic,  except  the  townships  of  West  Milford,  Pompton,  and 
Wayne,  for  State,  county,  township,  and  city  purposes,  shall  be 
exempt  from  taxation  when  in  the  hands  of  any  inhabitant,  cor- 
poration, or  association  residing  or  located  in  said  counties  or 
cities."  (Approved  April  2,  1869.) — Laws  of  New  Jersey,  1869, 
p.  1225. 


GOVERNMENT  BONDS.   ^  481 

mortgages  would  amount  to  a  prohibition  as  effectual  as 
the  prohibition  which  existed  under  the  Koman  law.  The 
Roman  patricians,  in  their  legislation,  wished  to  prevent 
the  common  people  from  becoming  an  independent  yeo- 
manry, and  owning  and  acquiring  real  estate  through  the 
facilities  of  borrowing  upon  mortgages.  No  chimerical 
attempt  had  then  ever  been  made  to  tax  money  at  interest, 
and  this  purpose  of  having  the  soil  cultivated  on  shares 
or  by  dependent  tenants  could  best  be  obtained  by  a 
prohibition  of  all  mortgages. 

Now,  it  needs  no  argument  to  show  that  a  system  of 
onerous  taxation  of  mortgages  must  have  a  tendency  to 
re-enact  the  Roman  policy,  and  that  it  is  undoubtedly 
the  true  interest  of  the  state,  on  both  political  and  eco- 
nomical grounds,  to  encourage  occupiers  to  become  owners, 
who  always  give  better  attention  and  protection  to  their 
own  property  than  to  the  property  of  landlords. 

Purchasers  of  Government  Bonds  not  practical- 
ly EXEMPT  FROM  TAXATION. — The  purchasers  of  United 
States,  State,  and  municipal  bonds  or  securities,  which 
are  nominally  exempt  from  taxation,  are  in  effect  taxed, 
and  uniformly  taxed  in  the  high '  price  which  they  are 
obliged  to  pay  for  these  securities  by  reason  of  their  ex- 
emption from  taxation.  It  is  not  only  a  sound  principle 
of  political  economy  that  a  tax  upon  money  at  interest 
is  simply  a  tax  upon  the  borrowing  price  of  the  bor- 
rower, causing  an  increased  rate  of  interest,  or  a  reduced 
price  to  be  obtained  for  the  obligation  given;  but  this 
principle  has  been  adjudicated  by  the  highest  court  of 
che  country,  so  far  as  a  court  of  last  resort  can  adjudicate 
a  great  principle  in  economic  science.  Thus,  in  the  case 
of  Weston  vs.  The  City  of  Charleston  (2  Peters,  449),  the 
Supreme  Court  of  the  United  States,  through  Chief-Jus- 
tice Marshall,  held  that  "  a  tax  on  Government  stock  is 
a  tax  on  the  power  to  horroiv  money  on  the  credit  of  the 
United  States."  If,  therefore,  we  except  the  borrower 
from  taxation  in  the  form  of  a  decreased  rate  of  interest, 
we  grant  him  no  special  exemption  or  advantage,  for  his 
property,  which  is  covered  by  the  debt,  has  already  in 
other  forms  been  taxed,  and  the  exemption  will  diffuse 
itself  in  the  form  of  lower  rate  of  interest,  which  will  be 
the  means  of  producing  a  higher  price  of  labour,  land. 


482    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

and  personal  property,  until  the  exemption  is  completely 
diffused.  Who  will  then  be  injured  by  taking  the  tax  from 
money  at  interest?  It  is  probable  that  he  who  now  adds 
the  tax  to  the  rate  of  interest,  and  charges  the  borrower, 
and  does  not  pay  it  to  the  State,  may  lose  by  the  change. 
He  will  be  obliged  to  enter  the  open  money  market  and  pay 
the  market  rate,  as  the  purchasers  of  Government  bonds 
now  do,  for  evidences  of  debt  that  will  be  free  from  taxa- 
tion in  the  hands  of  all  persons;  and  the  laws  of  trade 
will  regulate  his  investment  as  they  daily  regulate  the 
price  of  Government  bonds,  and  will  bring  down  his  securi- 
ties to  a  rate  of  interest  not  much  above  the  rate  paid  by 
the  national  Government.  The  exemption  applied  to 
United  States  bonds,  which  is  of  no  practical  benefit  to 
the  present  purchasers,  in  consequence  of  the  increased 
price  of  the  bonds,  would  be  of  no  benefit  if  applied  to 
the  holder  of  other  securities  in  an  established  and  perma- 
nent system,  except  in  freedom  from  the  uncertainties  and 
irregularities  attending  the  exercise  of  arbitrary  and  irreg- 
ular power.  If  the  exemption  is  an  exemption  of  every- 
thing of  the  same  class,  it  is  perfectly  equal  and  fair,  and 
its  effect  is  diffused  and  equated;  and  the  tax  on  another 
article,  taxed  in  lieu  of  the  exempted  class  of  articles,  is 
likewise  equated  and  diffused,  and  if  invisible  and  im- 
ponderable evidences  of  debt  can  not  be  taxed  equally 
no  injustice  will  arise  if  they  are  all  free  from  primary 
taxation,  and  if  the  taxes  of  a  permanent  system  are  im- 
posed on  other  things  subject  to  positive  and  fixed  rules 
of  assessment.  The  daily  price  of  United  States  bonds, 
therefore,  is  a  constant  lesson  that  an  exemption  of  a 
security  from  taxation  is  an  exemption  of  the  borrower, 
and  the  same  law  of  political  economy  will  rule  in  respect 
to  both  private  and  public  debts.  Each  State  has,  there- 
fore, the  power  to  put  its  borrowers  on  an  equal  footing 
with  the  General  Government,  and  without  injustice  or 
inequality  toward  the  borrower  or  the  lender. 

The  Old  and  New  Ideas  in  Taxation. — The  first  at- 
tempt made  to  tax  money  at  interest  was  instigated  against 
money  lenders  because  they  were  Jews;  but  the  Jew  was 
sufficiently  shrewd  to  charge  the  full  tax  over  to  the  Chris- 
tian borrower,  including  a  percentage  for  annoyance  and 
risk;  and  now  most  Christian  countries,  as  a  result  of 


TAXATION  OP  MONEY.  483 

early  experience,  compel  or  permit  the  Jew  to  enter  the 
money  market,  and  submit,  without  let  or  hindrance,  his 
transactions  to  the  "  higher  law "  of  trade  and  political 
economy.  But  a  class  yet  exist  who  would  persecute  a 
Jew  if  he  is  a  money  lender,  and  they  regret  that  the  good 
old  times  of  roasting  him  have  passed  away.  They  take 
delight  in  applying  against  him,  in  taxation,  rules  of 
evidence  admissible  in  no  court  since  witches  have  ceased 
to  be  tried  and  condemned.  They  sigh  at  the  suggestion 
that  all  inquisitions  shall  be  abolished;  they  consider 
oaths,  the  rack,  the  iron  boot,  and  the  thumbscrew  as  the 
visible  manifestations  of  equality.  They  would  tax  pri- 
marily everything  to  the  lowest  atom;  first  for  national 
purposes,  and  then  for  State  and  local  purposes,  through 
separate  boards  of  assessors.  They  would  require  every 
other  man  to  be  an  assessor  or  collector,  and  it  is  not 
probable  that  the  work  could  then  be  accomplished  with 
accuracy.  The  average  consumption  of  every  adult  in- 
habitant of  the  United  States  is  at  least  two  hundred 
dollars  annually,  or  in  the  aggregate  $1,500,000,000 ;  and 
this  immense  amount  would  fail  to  be  taxed  if  the  assess- 
ment was  made  at  the  end  of  the  year,  and  not  daily,  as 
fast  as  consumption  followed  production.  All  this  com- 
plicated macliinery  of  infinitesimal  taxation  and  mediae- 
val inquisition  is  to  be  brought  into  requisition  for  the 
purpose  of  taxing  "  money  property,"  which  is  nothing 
but  a  myth.  The  money  lender  parts  with  his  property 
to  the  borrower,  who  puts  it  in  the  form  of  new  buildings, 
or  other  improvements,  upon  which  he  pays  a  tax.  Is  not 
one  assessment  on  the  same  property  sufficient?  But  if 
you  insist  upon  another  assessment  on  the  money  lender, 
it  requires  no  prophetic  power  to  predict  that  he  will  add 
the  tax  in  his  transactions  with  the  borrower.  If  a  tax 
of  ten  per  cent  was  levied  and  enforced  on  every  bill  of 
goods,  or  note  given  for  goods,  the  tax  would  be  added  to 
the  price  of  goods,  and  how  would  this  form  of  tax  be 
different  from  the  tax  on  the  goods  ? 

"  Money  property,"  except  in  coin,  is  imaginary,  and 
can  not  exist.  There  are  rights  to  property  of  great  value. 
The  right  to  inherit  property  is  valuable;  and  a  mortgage 
on  land  is  a  certificate  of  right  or  interest  in  the  property, 
but  it  is  not  the  property.    Land  under  lease  is  as  much 


484    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

"  money  property  "  as  a  mortgage  on  the  same  land ;  both 
will  yield  an  income  of  money.  Labour  will  command 
money,  and  is  a  valuable  power  to  acquire  property,  but 
is  not  property.  If  we  could  make  property  by  making 
debts,  it  can  not  be  doubted  that  a  national  debt  would 
be  a  national  blessing.  Attacking  the  bugbear  of  "  money 
property "  is  an  assault  on  all  property ;  for  "  money 
property  "  is  the  mere  representative  of  property.  If  we 
tax  the  representative,  the  tax  must  fall  upon  the  thing 
represented. 


CHAPTER  XXII. 

TAXATION    OF    CHOSBS    IN    ACTION. 

In  addition  to  the  review  of  the  celebrated  Foreign- 
held  Bond  Case  *  decided  by  the  United  States  Supreme 
Court  in  1893,  it  is  proposed  to  call  attention  here  to 
additional  and  interesting  features  of  this  case  which 
have  not  been  hitherto  noticed  in  this  connection. 

The  court  having  decided  the  situs  for  taxation  of 
negotiable  instruments — railroad  bonds,  etc. — took  occa- 
sion also  to  affirm  the  taxable  situs  of  such  other  personal 
property.,  or  evidence  of  indebtedness,  as  is  generally  in- 
cluded under  the  term  choses  in  action,  using  in  so  doing 
the  following  language: 

"  But  other  personal  property,  consisting  of  bonds, 
mortgages,  and  debts  generally,  has  no  situs  independent 
of  the  domicile  of  the  owner,  and  certainly  can  have  none 
where  the  instruments,  constituting  the  evidence  of  debt, 
are  not  separated  from  the  possession  of  the  owner." 

As  thus  expressed,  the  reasons  given  by  the  court  for 
separating  for  taxation  the  situs  of  the  two  classes  of 
personal  property  under  consideration  are  so  clear,  and 
so  in  accordance  with  common  sense,  as  hardly  to  require 
any  further  explanation;  and,  therefore,  it  seems  only 
necessary  to  assist  the  reader,  who,  if  a  taxpayer,  is  cer- 
tainly interested  in  knowing  the  tax  liability  of  his  prop- 
erty, by  recalling  that  while,  in  the  case  of  negotiable 
instruments,  the  title  to  the  property  runs  with  the  instru- 
ment and  passes  by  delivery,  in  the  case  of  bonds,  mort- 
gages, and  sales  made  to  particular  persons,  and  thus 
non-negotiable,  the  title,  on  the  other  hand,  does  not  run 
with  the  instrument,  but  exclusively  with  the  person  of 
the  owner;  so  much  so,  that  the  attachment  of  a  mort- 

*  Ante,  p.  453. 

485 


486  THE  THEORY  AND  PRACTICE  OF  TAXATION. 


;^.\^ 


\i 


\/» 


gage,  or  the  possession  by  theft  or  finding  of  a  note  pay- 
able to  a  person,  does  not  in  any  degree  alienate  or  impair 
its  original  and  legitimate  ownership.  The  decision  of 
the  court,  therefore,  brings  all  classes  of  personal  property 
under  one  harmonious  and  consistent  rule  for  the  purpose 
of  taxation,  legal  attachment,  and  protection,  by  affirming 
that  their  situs  as  property  is  only  where  they  are;  which 
in  the  ease  of  visible  and  tangible  objects  and  negotiable 
instruments,  is  dependent,  from  the  very  nature  of  things, 
upon  actual  and  not  constructive  presence,  and  in  the 
case  of  choses  in  action  upon  the  domicile  of  the  owner; 
and  in  thus  deciding,  the  court  simply  followed  English 
precedents  of  long  standing  and  the  highest  character.* 

It  may,  however,  be  objected  that  the  practical  effect 
of  this  decision  has  been  to  relieve  all  negotiable  instru- 
ments from  taxation,  inasmuch  as,  removed  beyond  the 
territory  and  jurisdiction  of  the  State  in  which  their 
owner  resides,  they  will  not,  by  reason  of  easy  conceal- 
ment (for  which  safe-deposit  companies  in  the  larger  cities 
of  most  of  the  States  now  offer  great  facilities),  be  easily 
cognizable  by  the  assessors  of  the  locality  in  which  they 
are  deposited.  But  admitting  the  objection  in  full  force, 
as  in  all  reason  we  must,  what  then  ?  The  Supreme  Court 
has  given  its  opinion  clearly  and  unmistakably;  and  until 
this  opinion  is  reversed,  it  constitutes  the  legitimate  rule 
of  action  for  both  assessors  and  taxpayers.  But  suppose 
it  were  possible  to  reverse  the  opinion  in  question,  would 
it  be  expedient  to  do  so?  Would  it  be  desirable  to  aban- 
don the  plain  common-sense  view  that  the  situs  for  the 
taxation  of  all  personal  property  is  where  the  law  pro- 
tects it,  and  where  alone  an  assessment  and  a  legal  attach- 
ment against  it  can  be  enforced,  and  in  its  place  make 
situs  depend  on  visibility?  And  if  visibility,  what  degree 
Vof  visibility?     Shall  a  diamond,  a  bar  of  gold,  or  a  rail- 


*  Lord  Ellenborough,  in  King's  Bench  (Neilage  vs.  Holloway, 
Barnwell  and  Allison's  Reports,  318),  having  decided  that  a  nego- 
tiable note  was  a  chattel  personal  and  not  a  chose  in  action;  Lord 
Abinger,  that  all  foreign  government  bonds  payable  to  bearer  have 
a  sittis  where  they  are  actually  situated ;  and  the  House  of  Lords, 
that  registered  stocks  and  bonds  of  the  United  States  and  of  the 
several  States  not  passing  by  delivery,  are  not  negotiable  instru- 
ments, and  therefore  not  taxable  as  goods  and  chattels. 


TAXATION   OP   MORTGAGES.  487 

road  bond,  belonging  to  A.  B.,  residing  in  Boston,  but 
openly  displayed  in  a  Jeweller's  or  broker's  window  in 
Philadelphia,  be  taxable  in  Pennsylvania,  and  a  similar 
diamond,  gold  bar,  or  bond  of  the  same  owner,  deposited 
in  a  drawer  of  the  same  shop  or  office  and  not  so  readily 
visible,  be  taxable  in  Massachusetts?  Shall  we  make  the 
situs  of  property  for  taxation  depend  upon  the  keenness  of 
perception  or  visual  organs  of  an  assessor?  Or  shall  we 
not,  rather,  admit  that  the  attempt  to  raise  revenue  by 
taxing  such  property  as  negotiable  instruments  which 
from  their  very  nature  are  in  a  high  degree  intangible  and 
invisible,  and  thus  easy  of  concealment;  which,  passing 
by  delivery,  are  here  to-day  and  somewhere  else  to-mor- 
row; which  are  not  taxed  in  any  other  highly  civilized 
country,  and  which  are  in  great  part,  even  in  this  country, 
specifically  exempted  by  law — i.  e..  United  States  bonds, 
legal  tender,  national  bank  notes,  etc. — is  in  itself  an  ab- 
surdity and  a  wrong;  inasmuch  as  to  enforce  a  levy  from 
one  man  for  one  species  of  property,  because  through 
his  honesty,  ignorance,  or  inability  to  escape  he  can  be 
laid  hold  of,  and  allow  identically  the  same  description 
of  property  in  the  possession  of  another  man  to  escape 
because  of  varying  circumstances  beyond  the  control  of 
the  assessors,  is  not  taxation  in  any  sense,  l)ut  simply  arbi- 
trary  taking.  The  court  itself,  in  rel'orriug  to  tlic  tax 
under  consideration,  said  with  great  point  and  truth :  "  It 
is  only  one  of  many  cases  where,  under  the  name  of  taxa- 
tion, an  oppressive  exaction  is  made,  without  constitu- 
tional warrant,  amounting  to  little  else  than  an  arbitrary 
seizure  of  private  property.  It  is,  in  fact,  a  forced  con- 
tribution levied  upon  property  held  in  other  States,  where 
it  is  subjected,  or  may  be  subjected,  to  taxation  upon  am 
estimate  of  its  full  value." 

Decision  of  the  Supreme  Court  of  California  on 
THE  Taxation  of  Mortgages. — Any  review  of  the  history 
of  local  taxation  in  the  United  States  would  be  imper- 
fect which  failed  to  notice  a  notable  and  interesting  de- 
cision given  in  May,  1873,  by  the  Supreme  Court  of  Cali- 
fornia in  regard  to  the  taxation  by  its  State  authorities 
of  real-estate  mortgages.  The  question  was  one  that  for 
a  considerable  time  had  greatly  interested  the  people  of 
California,  and  the  drift  of  popular  sentiment  of  San 


iS: 


488  THE  THEORY  AND  PRACTICE  OF  TAXATION. 

Francisco  seems  to  have  been  most  unmistakably  in  favour 
of  their  taxation.  But  how  to  do  it,  and  at  the  same 
time  not  increase  the  burden  on  the  borrower,  who  had 
mortgaged  his  land  as  security  for  a  loan  of  capital  to 
improve  or  stock  it,  was  a  problem  that  not  a  little 
troubled  the  lawmakers  in  Legislature  assembled.  One 
proposition  brought  forward  contemplated  a  deduction 
from  the  amount  of  land  tax  of  the  assessment  on  the 
mortgage;  but  as  the  lands  of  California  were  found,  as 
a  rule,  to  be  taxed  far  below  their  value,  and  the  mort- 
gages for  a  value  far  in  excess  of  the  assessor's  appraise- 
ment of  the  land  they  covered,  it  soon  became  apparent 
that  this  scheme  was  to  a  greater  or  less  extent  equiva- 
lent to  exempting  the  land  and  taxing  the  mortgage.  An- 
other proposition,  embodied  in  a  bill  introduced  into  the 
Assembly,  was  to  make  void  all  contracts  by  which  bor- 
rowers agreed  to  reimburse  lenders  in  the  amount  of  the 
mortgage  tax ;  while  others  again  were  exceedingly  strenu- 
ous in  favour  of  trying  the  pleasing  little  experiment — 
which  no  community  having  once  tried  ever  desires  to 
repeat — of  providing  that  the  person  giving  the  mort- 
gage should  pay  the  taxes  upon  it,  but  be  at  the  same 
time  authorized  to  deduct  the  tax  from  the  principal,  or 
interest,  in  settling  with  his  creditor.  Pending  these  dis- 
cussions, however,  the  Supreme  Court,  which  had  the  ques- 
tion before  it  on  a  suit  to  which  one  of  the  savings  banks 
of  San  Francisco  was  a  party,  rendered  a  decision,  that 
in  virtue  of  a  clause  in  the  Constitution  of  the  State  re- 
quiring all  taxation  to  be  equal  and  uniform,  the  taxation 
of  mortgages  was  unconstitutional  and  illegal;  inasmuch 
as  to  tax  a  given  property  and  then  tax  a  mortgage  on  it, 
which  mortgage  is  not  in  itself  property,  but,  like  a  deed 
or  lease,  is  a  species  of  conveyance  or  acknowledgment 
of  a  conditional  interest  or  right  in  the  property,  is  not 
equal  and  uniform  taxation,  but  an  unequal  and  double 
tax  on  the  property  mortgaged. 

The  importance  of  this  decision,  considered  as  an  act 
reformatory  of  the  popular  theory  of  local  taxation,  does 
not  require  to  be  proved  and  illustrated ;  but  as  it  was 
unquestionably  a  step  in  advance  of  any  heretofore  taken 
by  either  our  Federal  or  State  courts,  and  as,  by  reason 
of  it,  not  only  were  mortgages  exempted  from  taxation 


MORTGAGOR  PAYS  TWO  TAXES.       489 

in  California,  but  also  all  promissory  notes  and  other  evi- 
dences of  indebtedness,  it  is  desirable  briefly  to  ask  atten- 
tion to  the  reasoning  by  which  the  court  was  led  to  its  con- 
clusions. 

The  opinion  was  given  by  the  Chief  Justice — Crockett 
— who,  after  reviewing  the  history  of  the  case,  is  reported 
to  have  used  the  following  language: 

"  I  come  now  to  the  point,  whether  a  tax  on  land  at 
its  full  value,  and  a  tax  on  a  debt  for  money  loaned, 
secured  by  a  mortgage  on  the  land,  is  in  substance  and 
legal  effect  a  tax  on  the  same  property.  We  all  know, 
as  a  matter  of  general  notoriety,  that  almost  universally, 
by  a  stipulation  between  parties,  the  mortgagor  is  obliged 
to  pay  the  tax  both  on  the  land  and  on  the  mortgage. 
Practically  he  is  twice  taxed  on  the  same  value,  if  he  has 
still  in  his  possession  the  borrowed  money  to  secure  which 
the  mortgage  was  made.  The  law  taxes  in  his  hand  both 
money  and  land;  and  by  his  stipulation  he  is  required 
to  pay  tax  on  the  mortgage  debt,  and  also,  if  the  money 
has  passed  out  of  his  hands  into  the  possession  of  some 
other  taxpayer,  it  is  taxed  in  the  hands  of  the  latter,  so 
that  the  money  bears  its  share  of  taxation,  and  the  land 
its  share,  in  the  hands  of  whomsoever  they  may  happen 
to  be. 

"  It  is  very  true  that  a  voluntary  agreement  on  the 
part  of  the  mortgagor  to  pay  the  tax  on  the  mortgage 
debt  can  not  improve  its  situs.  The  State  was  no  party 
to  the  contract,  and  is  not  bound  by  stipulation  mter 
alias.  The  burdens  of  taxation  can  not  be  shifted  from 
those  on  whom  the  law  imposes  them  by  stipulations  be- 
tween private  persons ;  but  in  the  absence  of  such  a  stipu- 
lation, an  inexorable  law  of  political  economy  would  im- 
pose upon  the  mortgagor  the  burden,  in  a  different  form, 
of  paying  the  tax  on  the  mortgage  debt.  Interest  on 
money  loaned  is  paid  as  a  compensation  for  the  use  of 
the  money,  and  a  rate  of  interest  as  agreed  on  is  the 
amount  which  the  parties  stipulate  will  be  the  just  equiva- 
lent to  the  lender.  If,  however,  by  the  imposition  of  a  tax 
on  the  debt,  the  Government  diminishes  the  profit  which 
the  lender  would  otherwise  receive,  the  rate  of  interest 
will  be  sufficiently  increased  to  cover  the  tax,  which  in 
this  way  will  be  ultimately  paid  by  the  borrower.  The 
33 


490    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

transaction  would  be  governed  by  the  same  immutable, 
inflexible  law  of  trade  by  reason  of  which  import  duties 
on  articles  for  consumption  are  ultimately  paid  by  the 
consumer,  and  not  by  the  importer.  The  rate  of  interest 
on  money  loaned  is  regulated  by  the  supply  and  demand 
which  govern  all  articles  of  commerce;  and  the  burdens 
imposed  by  law  in  the  form  of  a  tax  on  the  transaction, 
which  would  thereby  diminish  the  profits  of  the  lender, 
if  paid  by  him,  will  prompt  him  to  compensate  for  the 
loss  by  increasing  to  that  extent  the  rate  of  interest  de- 
manded. //  his  money  ivoiild  command  a  given  rate  of 
interest  without  the  burden,  he  will  he  vigilant  to  see  that 
the  borrower  assumes  the  burden,  either  by  express  stipu- 
lation, or  in  the  form  of  increased  interest.  This  is  the\ 
law  of  human  nature,  which  statute  laws  are  powerless  to 
suppress,  and  which  pervades  the  whole  of  trade  governed 
by  the  law  of  supply  and  demand.  Nor  would  the  enact- 
ment of  the  most  stringent  usury  laws  produce  a  different 
practical  result.  Human  ingenuity  has  hitherto  proved 
inadequate  to  the  task  of  devising  usury  laws  which  were 
incapable  of  easy  evasion;  and  wherever  they  exist  they 
are,  and  will  continue  to  be,  subordinate  to  that  higher 
law  of  trade  which  ordains  that  money,  like  other  articles 
of  commercial  value,  will  command  just  what  it  is  worth 
in  the  market,  no  more  and  no  less.  x\ssuming  these  prem- 
ises to  be  correct,  and  I  am  convinced  that  they  are,  it 
results  that  it  is  the  borrower,  and  not  the  lender,  who 
pays  the  tax  on  borrowed  money,  whether  secured  by  mort- 
gage or  not ;  but  if  secured  by  mortgage,  he  is  taxed  not 
only  on  the  mortgage  and  property,  but  on  the  debt  which 
the  property  represents  and  which  is  held  as  a  security 
for  the  debt."  * 

*  Of  the  soundness  of  this  decision  there  could  probably  be  no 
more  convincing  illustration  than  the  statement  that  upon  its  an- 
nouncement the  savings  banks  of  San  Francisco  gave  notice  that 
they  would  immediately  reduce  the  rate  of  interest  on  their  loans 
secured  by  mortgages  by  the  amount  of  the  tax  on  the  mortgage. 
And  the  Alta-California  of  May  9th,  in  commenting  upon  the  de- 
cision, says:  "When  the  news  arrived  here  yesterday  morning" 
(that  the  Supreme  Court  had  given  a  decision)  "it  was  not  unex- 
pected; and  the  idea  conveyed  by  the  false  rumours  set  afloat,  that 
the  decision  was  adverse  to  the  savings  banks,  was  accepted  as 
a  decision  measured  by  expediency,  and  not  based  on  sound  legal 


ABSURDITIES  INVOLVED.  491 

Subsequently  the  Hibernia  Savings  Society  of  San 
Francisco  having  resisted  under  the  provisions  of  the  Con- 
stitution of  California  the  taxation  of  mortgages  given 
to  secure  the  loan  of  property,  the  Supreme  Court  again 
met  the  case  fairly  and  squarely — its  language  by  Justice 
Wallace  being  reported  as  follows :  "  Mere  credits  are  a 
false  quantity  in  ascertaining  the  sum  of  wealth  which 
is  subject  to  taxation  as  property,  and  so  far  as  that  sum 
is  attempted  to  be  increased  by  the  addition  of  these 
credits,  property  based  thereon  is  not  only  merely  fanci- 
ful, but  necessarily  the  imposition  of  an  additional  tax 
upon  a  portion  of  the  property  already  once  taxed.  The 
taxation  thus  imposed,  nominally  upon  credits,  having 
resulted  in  the  double  taxation  of  money,  the  additional 
tax  must  be  paid  by  some  one.  And  here  all  experience, 
as  well  as  all  settled  theories  of  finance,  concur  that  it  is 
not  the  lender  who  pays,  but  the  borrower.  The  borrower 
is  the  consumer;  the  interest  that  he  pays  to  the  lender 
is  the  prime  cost  of  the  delay  for  which  he  has  contracted. 
If  the  Government,  by  the  imposition  of  additional  taxes, 
increase  the  cost,  the  borrower,  being  the  consumer,  must 
pay  for  it." 

The  court,  through  Justice  McKinstry  (the  Chief  Jus- 
tice's opinion  being  in  concurrence),  enumerated,  as  fol- 
lows, some  of  the  absurdities  to  which  an  attempt  to  in- 
clude choses  in  action  in  the  definition  of  property  would 
necessarily  lead : 

"  Supposing,"  he  said,  "  that  the  necessaries  of  Gov- 
ernment required  a  tax  of  one  hundred  per  cent  on  all 
values,  or.  what  would  be  the  result  of  such  a  tax,  an 
appropriation  of  all  the  property  in  the  State — it  is  plain 
that  the  State  would  receive  no  benefit  from  evidences  of 
debt  due  by  some  of  her  citizens  to  others,  and  payable 
out  of  the  tangible  property  which  the  State  had  already 
taken. 

"  The  Legislature  may  declare  that  a  cause  of  action 

principles.  Special  despatches  received  changed  the  result;  and 
when  it  became  evident  that  the  banks  and  the  mercantile  com- 
munity had  triumphed,  a  general  feeling  of  satisfaction  Avas  every- 
where noticeable.  Merchants,  bankers,  and  taxpayers  generally 
received  the  news  with  the  feelings  of  men  who  felt  relieved  from 
a  terrible  incubus." 


492    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

shall  be  taxed,  but  a  cause  in  action  can  not  pay  the  tax; 
and  this  because  it  has,  and  can  have,  no  value  independent 
of  the  tangible  wealth  out  of  which  it  may  be  satisfied. 

"  It  may  be  possible-  in  every  case  to  show  that  the 
debtor  has  paid  the  tax  assessed  to  his  creditor.  But  it 
admits  of  mathematical  demonstration — if  other  property 
in  the  State  has  been  assessed  at  its  value — that  the  money 
which  shall  ultimately  satisfy  the  debt  (if  it  ever  is  satis- 
fied) has  paid  the  tax.  If  it  were  practical  to  assess  all 
the  property  in  the  State  at  the  same  moment  of  time,  it 
would  be  clear  to  every  mind  that  an  assessment  of  a  credit 
was  an  attempt  to  transfer  to  it  a  value  elsewhere  assessed. 
If  a  debtor  was  found  to  be  the  owner  of  one  thousand 
dollars,  and  is  assessed  for  that  sum,  and  his  creditor  is 
found  to  be  the  owner  of  his  note  for  one  thousand  dollars, 
and  is  assessed  for  a  like  sum;  and  if  the  day  after  the 
visit  of  the  assessor  to  the  creditor  the  debtor  shall  pay 
his  note,  it  is  clear  that  this  same  value  has  been  twice 
taxed;  since  the  debtor  has  parted  with  his  money,  and 
received  only  that  which  is  certainly  not  taxable  property 
in  his  hands,  and  which  can  never  afterward  be  assessed. 
When  a  debtor  pays  his  debt,  he  does  not  abstract  or  de- 
stroy any  portion  of  the  taxable  property  of  the  State ;  the 
aggregate  of  values  remains  the  same." — Opinion  of  Jus- 
tice McKinstry* 

Suppose,  "  were  such  a  thing  possible,  that  the  entire 
tax  rolls  exhibited  nothing  but  indebtedness.  Taxation 
under  such  circumstances  would,  of  course,  be  wholly 
fanciful,  as  having  no  actual  basis  for  its  exercise." — 
Opinion  of  Chief -Justice  Wallace. 

*  See  the  article  by  Carl  C.  Plehn,  on  the  Taxation  of  Mort- 
gages in  California,  in  the  Yale  Review,  May,  1899. 


CHAPTER  XXIII. 

THE    CASE   OF   KIRTLAND   VS.    MOTCHKISS. 

The  above  designation  has  been  popularly  given  to 
one  of  the  most  important  questions  that  has  ever  come 
before  the  legal  tribunals  of  this  country,  and  the  record 
of  which  has  been  heretofore  so  difficult  of  access  that  it 
has  not  attracted  the  attention  it  merits,  but  which  it  is 
to  be  hoped  will  prove  at  no  distant  period  a  subject  of 
popular  interest  and  future  judicial  consideration. 

The  particulars  of  the  case  are  in  the  main  as  follows : 
In  1869,  or  previous,  Charles  W.  Kirtland,  a  citizen 
of  Woodbury,  Litchfield  County,  Connecticut,  loaned 
money,  through  an  agent,  a  resident  and  citizen  of  Illinois, 
on  bonds  secured  by  deeds  of  trust  on  real  estate  in  the 
city  of  Chicago.  Each  of  these  bonds  declared  that  "  it 
was  made  under  and  is  in  all  respects  to  be  construed  by 
the  laws  of  the  State  of  Illinois,"  and  that  the  principal 
and  interest  of  the  obligation  were  payable  in  the  city  of 
Chicago.  The  deed  of  trust  also  contained  a  provision 
that  all  taxes  and  assessments  on  the  property  conveyed 
should  be  paid  by  the  obligor  (borrower)  without  abate- 
ment on  account  of  the  mortgage  lien;  that  the  property 
might  be  sold  at  auction,  m  Chicago,  by  the  trustee,  in 
case  of  any  default  of  payment,  and  that  a  good  title, 
free  from  any  right  of  redemption,  on  the  part  of  the 
obligor,  might  in  that  case  be  given  by  the  trustee.  An- 
other interesting  feature  of  the  case  not  to  be  overlooked 
was,  that  pending  the  proceedings  to  be  next  related,  the 
loans  as  originally  made  became  due  and  were  paid ;  when 
the  proceeds,  without  being  removed  from  Illinois  and  re- 
turned to  Mr.  Kirtland  in  Connecticut,  were  reinvested 
in  Chicago  by  his  agent,  under  terms  and  conditions  as 
before. 

493 


494    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

These  facts  becoming  known  to  the  tax  officials  of  the 
town  of  Woodbury,  they  added  in  1869  to  the  list  of  prop- 
erty returned  by  Kirtland  for  the  purpose  of  taxation,  as 
situated  within  the  State,  the  sum  of  eighteen  thousand 
dollars;  and  in  1870  the  sum  of  twenty  thousand  dollars, 
to  represent  the  amount  of  property  owned  and  loaned  by 
Kirtland,  in  each  of  these  years,  as  was  conceded,  without 
the  territory  of  the  State.  The  sums  thus  added  were 
subsequently  assessed  in  the  town  of  Woodbury  in  the 
same  manner  and  at  the  same  rate  as  was  other  property 
which  Mr.  Kirtland  owned  within  the  State  and  there 
situated. 

Payment  of  the  taxes  thus  assessed  on  the  amount  of 
these  Illinois  loans  being  refused  by  Kirtland,  the  tax 
collector  (Hotchkiss),  in  April,  1873,  levied  his  tax  war- 
rants on  the  real  estate  of  the  alleged  delinquent  in  Wood- 
bury, and  advertised  the  same  for  sale;  and  on  petition 
for  injunction  to  restrain  the  collector  from  such  pro- 
ceedings, on  the  ground  of  the  illegality  of  the  tax  in 
question  and  its  assessment,  the  case  came  before  the  court 
of  last  appeal  in  the  State,  known  as  the  "  Supreme  Court 
of  Errors  " ;  it  being  agreed  by  all  parties  concerned  that 
the  only  question  in  the  case  was  whether  the  bonds 
owned  by  Kirtland,  drawn  in  the  form  and  manner  stated, 
were  liable  to  taxation  in  Connecticut. 

Case  for  the  Respoxdext. — In  the  argument  before 
and  in  the  opinion  rendered  by  this  court  the  following 
were  the  points  mainly  relied  upon  in  support  of  the  posi- 
tion that  the  petition  for  injunction  in  restraint  of  the  col- 
lection of  the  tax  should  not  be  granted :  First,  that  the 
statutes  of  Connecticut  explicitly  authorized  and  required 
the  taxation  of  debts  due  its  citizens  from  parties  out  of  the 
State.  Second,  in  respect  to  the  power  of  the  Legislature  of 
Connecticut  to  authorize  and  require  such  form  of  taxation, 
it  was  claimed  that  there  was  no  provision  in  the  Consti- 
tution of  the  State  limiting  and  defining  such  power  of 
taxation.  Third,  the  following  characterization  of  the 
nature  of  a  debt  or  a  chose  in  action,  and  its  suitability 
as  a  subject  for  taxation  for  the  purpose  of  obtaining  reve- 
nue, was  put  forward  by  the  counsel  for  the  State  as  a 
statement  of  economic  conclusions  worthy  of  full  accept- 
ance.    "  It  [a  chose  in  action]  has  not  a  visible,  tangible 


CASE  FOR  THE  RESPONDENT.  495 

form.  The  note,  bond,  or  account  even,  may  be  evidence 
of  a  debt,  but  it  is  not  the  debt  itself.  The  specific  money 
when  loaned,  and  received  by  the  borrower,  is  no  longer 
the  property  of  the  creditor.  It  is  soon  merged  in  the 
circulating  mass,  and  the  creditor  can  neither  identify 
and  claim  it,  nor  put  his  hand  upon  any  property  pur- 
chased with  it,  and  say  that  that  is  his.  The  money  may 
be  invested  in  real  estate,  or  manufacturing,  or  merchan- 
dising, or  speculation.  It  may  prove  a  profitable  invest- 
ment, or  it  may  in  a  short  time  prove  a  total  loss.  It  is 
all  the  same  to  the  creditor  so  long  as  his  debtor's  ability 
to  pay  is  unimpaired.  He  has  simply  a  right  to  receive 
a  given  sum  of  money  with  interest  or  damages  for  its 
detention.  It  is  a  personal  right,  and  accompanies  the 
person  of  the  creditor.  The  debtor  is  under  a  correspond- 
ing obligation  to  pay  the  demand.  The  right  to  receive  is 
valuable,  and  through  it  an  income  is  derived.  That  right 
may  ivith  'propriety  he  taxed.  The  obligation  to  pay  is 
a  burden,  and  has  never,  to  our  knowledge,  been  the  sub- 
ject of  taxation.  It  seems,  therefore,  that  the  appropriate 
place  to  tax  money  at  interest  is  where  the  creditor  re- 
sides, and  that  for  that  purpose  it  may  with  propriety 
be  said  to  be  located  with  the  creditor."  * 

The  respondent  attached  much  importance  to  the 
analogy  "  between  a  money  demand,  evidenced  by  a  note 
or  bond,  and  shares  of  stock  in  a  corporation  " ;  and  to 
the  fact  that  the  United  States  Supreme  Court  had  de- 
cided that  "  shares  of  stock  in  national  banks  are  property, 
separate  and  distinct  from  the  property  of  the  corpora- 
tions which  they  represent,  and  are  taxable  "  ( National 
Bank  vs.  Commonwealth,  9  Wall.,  353). 

Reference  was  also  made  to  the  case  of  Minot  vs.  The 
Philadelphia,  Wilmington  &  Baltimore  Railroad  Company, 
in  which  the  United  States  Supreme  Court  was  held  to 
have  recognised  a  distinction  between  shares  of  railroad 
stock  and  the  capital  (property)  of  a  corporation,  and 
in  respect  to  which  it  was  assumed  that  the  court  main- 
tained that  the  share  of  a  stockholder  is  something  dif- 


*  Reference  in  this  connection  is  made  to  the  opinions  on  this 
general  subject  expressed  by  the  Supreme  Court  of  California, 
given  in  the  preceding  chapter. 


496     THE   THEORY   AND   PRACTICE   OP   TAXATION. 

ferent  from  the  capital  stock  of  a  company;  the  latter 
being  the  property  of  the  company  only,  while  the  former 
is  the  individual  interest  of  the  stockholder,  constituting 
his  right  to  a  proportional  part  of  the  dividends  when 
declared  and  to  a  proportional  part  of  the  effects  of  the 
corporation  when  dissolved  after  payment  of  its  debts. 
Regarded  in  that  aspect,  it  was  held  to  be  an  interest  or 
right  which  accompanies  the  person  of  the  owner  and  hav- 
ing no  locality  independent  of  its  domicile. 

But  whether,  when  thus  regarded,  it  can  be  treated  as 
so  far  separable  from  the  property  to  which  it  relates  as 
to  be  taxable  independent  of  the  locality  of  the  latter, 
was  a  question  which  the  counsel  of  the  State  did  not  hold 
to  be  decided;  but  there  was  a  strong  intimation  that  the 
United  States  Court  intended  to  decide  that  shares  of 
railroad  stock  can  only  be  taxed  in  the  State  where  the 
owner  resides. 

Case  for  the  Petitioners. — On  the  other  hand,  the 
following  is  a  summary  of  the  arguments  and  reasons  ad- 
vanced (mainly  by  one  of  the  most  learned  and  distin- 
guished members  of  the  Court  of  Errors  of  the  State,  and 
of  the  American  bar,  Hon.  L.  F.  S.  Foster,  formerly  presi- 
dent of  the  United  States  Senate  and  acting  Vice-Presi- 
dent of  the  United  States),  in  support  of  the  petition 
for  an  injunction  in  restraint  of  the  collection  of  a  tax 
upon  the  plaintiff: 

"  Taxation  and  protection  are  correlative  terms.  Pro- 
tection to  the  person  is  the  ground  on  which  the  right  to 
tax  the  person  rests.  Protection  to  the  business,  pro- 
tection to  that  portion  of  the  property  not  taken  by  the  tax, 
is  the  consideration  or  compensation  for  all  legitimate  tax- 
ation on  business  or  on  property.  The  person  must  be 
domiciled  within  the  State  to  be  subject  to  a  personal  or 
poll  tax ;  the  business  or  the  property  must  also  be  within 
the  territory  of  the  State  to  confer  jurisdiction  over  them. 
That  the  person  of  the  plaintiff  is  within  the  jurisdiction, 
and  subject  therefore  to  the  taxing  power,  is  apparent 
from  the  record.  This  tax,  however,  is  not  imposed  on 
the  person;  it  is  imposed  on  the  property  of  the  plaintiff, 
and  as  such  it  must  be  sustained,  if  sustained  at  all.  The 
case  does  not  require  any  description  of  the  various 
species  of  property,  real,  personal,  etc.    Eeal  property  has. 


CASE   FOR  THE  PETITIONERS.  497 

of  course,  an  immovable  sitiis,  and  can  never  be  subject 
to  any  taxation  except  that  imposed  by  the  government 
within  whose  jurisdiction  it  is  situate.  The  reason  is, 
that  that  government  is  the  only  one  that  can  afford  it 
protection.  Personal  property,  of  whatever  it  may  con- 
sist, though  capable  of  being  transported  from  place  to 
place,  if  it  be  of  a  visible  and  tangible  kind,  would  seem, 
in  the  nature  of  things,  to  follow  the  same  rule  and  for 
the  same  reason — that  is,  to  be  subject  to  taxation  by  the 
State  within  whose  jurisdiction  it  is  situate,  as  that  State 
only  has  dominion  over  it,  and  as  that  State  only  can 
afford  it  protection. 

"  Now,  if  the  property  in  question  be  considered  real 
property,  it  being  in  the  State  of  Illinois,  any  tax  upon 
it  by  Connecticut  would  be  extra-territorial  and  void.  If 
it  be  considered  personal  property,  of  a  visible  and  tan- 
gible character,  it  is  still  in  the  State  of  Illinois,  and  so 
just  as  much  out  of  the  dominion  and  beyond  the  juris- 
diction of  the  State  of  Connecticut  as  though  it  were 
real  property.  If  we  consider  the  property  to  be  an  in- 
terest in  real  or  personal  property,  or  a  title,  inchoate, 
equitable,  or  legal,  to  such  property  in  Illinois,  such  in- 
terest, or  such  title,  is  no  legitimate  subject  of  taxation 
in  Connecticut.  The  corpus  and  situs  of  this  property 
being  in  Illinois,  and  subject,  of  course,  to  taxation  there 
because  within  her  jurisdiction,  no  interest  in  it,  no  title 
to  it,  can  be  taxable  in  Connecticut.  Such  a  claim  involves 
one  of  two  absurdities :  either  that  the  same  property  may 
be  in  two  places  at  the  same  time,  or  that  two  independent 
governments  can  have  jurisdiction  over  the  same  subject- 
matter  at  one  and  the  same  time. 

"  But  the  property  of  the  plaintiff  on  which  this  tax 
has  been  imposed  is  not  real  property,  nor  is  it  personal, 
of  the  character  here  considered.  It  may  be  well  to  de- 
scribe it  precisely,  that  there  may  be  no  room  for  misun- 
derstanding. 

"  The  plaintiff  loaned  money  in  the  city  of  Chicago,  in 
the  State  of  Illinois,  on  bonds  conditioned  for  its  repay- 
ment, and  secured  by  deeds  of  trust.  One  of  said  bonds, 
and  one  of  said  deeds,  as  a  specimen  of  all,  is  made  part 
of  the  record.  This  bond  declares  '  that  it  is  made  under, 
and  is  in  all  respects  to  be  construed,  by  the  laws  of  the 


498    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

State  of  Illinois,  and  is  given  for  an  actual  loan  of  money 
[$3,000]  made  at  Chicago,  by  Charles  W.  Kirtland  [the 
plaintiff],  to  Edmund  A.  Cummings  [the  obligor]  on  the 
day  of  the  date  hereof '  [July  17,  1809].  The  deed  of  the 
same  date  is  a  conveyance  in  fee,  by  Cummings  and  his 
wife,  of  a  lot  of  land  in  Cliicago,  to  Xorman  C.  Perkins, 
of  said  city,  to  be  held  by  him  in  trust,  as  security  for  the 
payment  of  said  loan,  with  power  to  sell  and  convey  the 
same,  and  apply  the  proceeds  in  payment  of  the  loan,  in 
case  of  default  on  the  part  of  said  Cummings  to  perform 
the  stipuUitions  of  said  bond.  It  is  quite  obvious  that 
Cummings  has  incurred  a  debt  to  Kirtland,  and  that 
Kirtland  has  a  claim  against  Cummings.  Cummings  is 
the  debtor,  Kirtland  the  creditor.  Has  this  debt  a  situs? 
If  it  has,  where  is  it  ?  In  Illinois,  or  in  Connecticut  ?  The 
contract  to  loan  was  made  in  Illinois,  there  the  creditor 
parted  with  his  money,  there  is  the  property  pledged  for  its 
repayment,  there  the  debtor  is  domiciled,  there  the  trustee. 

"  This  seems  to  indicate  Illinois  as  the  situs  of  this 
debt.  So  far  as  it  is  a  thing  having  a  substantial  exist- 
ence, it  is  there,  and  not  elsewhere.  The  Connecticut 
statute  provides  in  terms,  '  that  money  secured  by  mort- 
gages upon  real  estate  in  this  State  shall  be  set  in  the 
list  and  taxed  only  in  the  town  where  said  real  estate  is 
situated.'  This  manifestly  recognises  the  situs  of  the 
property  pledged  as  security  for  a  debt,  as  the  situs  of  the 
debt.  But  a  debt  has  no  situs.  Only  a  material  thing 
can  have  a  corpus,  and  only  a  corpus  can  have  a  situs,  for 
it  is  the  location  of  the  corpus  that  constitutes  a  situs. 
A  debt  is  neither  visible,  tangible,  nor  ponderable;  it  has 
no  situs,  no  corpus.  It  is  a  misnomer  to  call  it  property. 
In  legal  phrase  it  is  but  a  chose  in  action,  a  jus  incorporate. 
It  is  an  equitable  title  in  the  property  of  the  debtor,  and 
it  adheres,  as  a  title,  in  the  property  it  represents.  It 
does  not  follow  the  person  of  the  owner  in  his  domicile, 
though  he  may  transfer  it  there. 

"  These  views  are  fully  sustained  by  the  United  States 
Supreme  Court,  in  the  case  of  Brown  vs.  Kennedy,  15 
Wall.,  591.* 

*  In  this  case,  which  covered  a  proceeding  under  the  confiscation 
act  of  1862,  the  United  States  Court  rejected  the  theory  that  a 


SITUS  OF  A   DEBT.  499 

"  The  same  court  also  held  to  similar  conclusions  in 
a  number  of  other  cases.  Thus,  in  the  case  of  Pelhara 
vs.  Kose,  9  Wall.,  103,  a  note,  the  evidence  of  the  credit, 
not  the  credit  itself,  was  the  thing  proceeded  against.  In 
the  case  of  Pelham  vs.  Way,  15  Wall.,  196,  where  the  court 
also  held  that  the  proceedings,  not  having  been  against 
either  the  debt  or  credit,  but  only  against  the  material 
evidence  of  it,  and  that  material  evidence  having  been 
out  of  the  marshal's  jurisdiction,  no  confiscation  had  been 
effected. 

"  Now,  if  these  decisions,"  said  Judge  Foster  to  his 
colleagues  in  the  Court  of  Errors,  "  are  to  be  recognised 
as  law,  how  can  it  be  claimed  that  on  this  credit,  given  by 
Kirtland  to  Cummings  in  the  State  of  Illinois,  secured  by  a 
deed  of  real  estate  there  situate,  held  by  a  trustee  resi- 
dent there,  the  debtor  being  domiciled  there,  the  debt  made 
payable  there,  the  laws  oi  Illinois  by  express  agreement 
to  govern  the  contract;  how  (for  the  question  bears  re- 
peating) can  it  be  claimed  that  there  is  any  subject-matter 
within  the  jurisdiction  of  Connecticut  on  which  to  impose 
a  tax? 

credit  has  a  legal  situs  where  the  owner  resides,  and  held  tliat 
a  bond  and  mortgage  form  of  credit  could  be  confiscated  by  the 
United  States  where  the  mortgage  debtor  resided,  though,  in  point 
of  fact,  the  bond  and  mortgage  were  never  in  the  State  of  Kansas 
where  the  proceedings  in  forfeiture  took  place,  and  were,  in  fact, 
in  possession  of  the  owner,  in  the  rebel  lines,  in  the  State  of 
Virginia.  The  court  accordingly  passed  a  decree,  and  ordered  that 
the  said  bond,  mortgage,  and  credit  be  condemned  and  declared 
forfeited  to  the  United  States.  The  decree  also  ordered  Kennedy, 
one  of  the  obligors  and  mortgagors,  to  pay  the  debt  into  the  court, 
for  the  use  of  the  United  States;  and  in  pursuance  of  the  decree 
the  payment  was  made  to  the  officers  of  the  court.  After  the 
termination  of  the  war,  or  in  1868.  Brown,  the  obligee  and  mort- 
gagee in  this  bond  and  mortgage,  having  obtained  a  pardon  from 
the  President  of  the  United  States,  filed  a  bill  in  the  United  States 
Circuit  Court  for  the  district  of  Kansas  airninst  Kennedy  and 
wife,  for  the  foreclosure  of  this  mortgage.  The  principal  defence 
was,  that  the  mortgage  and  the  debt  secured  liy  it  had  Ijeen  confis- 
cated under  the  act  of  Congress.  That,  of  course,  put  in  issue  the 
validity  of  those  proceedings.  It  was  admitted  as  matter  of  fact 
and  agreed,  that  Brown,  the  complainant,  was  and  always  had  been 
a  resident  of  Virginia,  had  been  a  continuous  resident  of  the  State 
from  June,  1860,  to  September,  1865.  and  neither  the  bond  nor 
mortgage  in  question  was  during  any  part  of  that  time  in  the  dis- 
trict of  Kansas. 


500    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

f  "  That  the  land  in  Illinois  which  is  the  security  for  this 
debt,  and  of  which  this  debt  is  the  representative,  has 
borne  its  full  share  of  taxes  without  diminution  on  ac- 
count of  this  debt  is  not  denied.  If  the  land  were  in  Con- 
necticut, this  would  suffice;  no  tax  could  be  collected  on 
the  debt.     That  the  land  is  in  Illinois  can  not  affect  the 


principle.  If  each  State  has  dominion  over  the  property, 
real  and  personal,  within  its  territory  for  the  purposes  of 
taxation — and  he  must  be  a  bold  man  who  denies  it — 
•  that  dominion  must,  from  its  nature,  be  exclusive.  No 
other  State  can  have  concurrent  jurisdiction.  Nor  does 
any  other  State  become  invested  with  the  power  to  tax, 
if  the  State  in  which  the  power  is  vested  omits  to  exercise 
that  power.  Should  a  State  exempt  the  property,  real  or 
personal,  within  its  limits,  belonging;  to  non-residents, 
from  taxation,  by  what  authority  could  any  foreign  State 
impose  taxes  on  such  property?  The  question  is  purely 
jurisdictional,  and  the  matter  of  double  taxation  is  not 
involved.  The  point  is  not  whether  the  State  may  tax  a 
thing  twice,  but  whether  there  is  anything  within  its  juris- 
diction that  it  can  tax  at  all. 

"  Resort  must  be  had  to  a  legal  fiction  to  draw  this 
debt  into  Connecticut.  It  does  not  appear  from  the  record 
that  even  the  evidences  of  the  debt,  the  bond  and  deed, 
were  held  in  Connecticut." 

Under  such  circumstances,  it  is  curious  to  note,  as 
Judge  Foster  especially  pointed  out,  to  what  a  singular 
and  absurd  hypothesis  and  procedure  the  Connecticut  au- 
thorities, as  if  conscious  that  they  had  abandoned  reason 
and  were  dealing  with  sentiment,  had  recourse  in  order 
to  get  a  basis  and  a  warrant  for  their  action.  They  first 
assumed  that  there  was  an  imaginary  property,  separate 
and  distinct  from  the  material  property;  and  then  gave 
to  such  imaginary  property  an  imaginary  silus,  thus 
"  going  far  into  the  domain  of  the  sentimental  and  spirit- 
ual for  the  purpose  of  taxation."  Bishop  Berkeley,  it  will 
be  remembered,  held  to  the  opinion  that  matter  does  not 
exist,  and  that  we  only  imagine  that  it  exists ;  but  it  is 
not  at  all  probable  that  he  ever  hoped,  when  alive,  that 
his  views  would  be  so  practically  indorsed,  and  at  so  early 
a  day,  in  the  State  of  his  literary  adoption.  He  would 
have  made,  moreover,  a  desirable  tax  assessor  and  tax 


CONSTITUTIONAL  QUESTION.  501 

collector  under  the  present  Connecticut  tax  laws ;  for  being 
logical,  even  if  lie  was  sentimental,  he  would  doubtless 
have  been  willing  to  take  the  taxes  in  the  pure  product  of 
the  imagination.  His  successors,  however,  were  not  only 
sentimental  but  illogical;  for,  not  content  with  assuming 
that  the  imaginary  is  the  real,  they  tried  to  do  what  the 
good  bishop  never  would  have  sanctioned — namely,  take 
something  out  of  nothing. 

But,  apart  from  these  curious  and  novel  politico-eco- 
nomic and  legal  features,  this  Kirtland  case  involves  con- 
stitutional questions  of  the  highest  interest  and  impor- 
tance— as  much  so,  perhaps,  as  any  case  ever  brought  to 
judicial  arbitrament  since  the  formation  of  the  Federal 
Constitution. 

The  power  of  the  State  to  tax  the  business  of  loaning 
money,  like  the  power  to  tax  any  business  transacted 
within  its  limits,  by  way  of  license  or  otherwise,  whether 
the  money  be  loaned  to  parties  within  or  without  the 
State,  is  unquestionable. 

But  this,  however,  can  not  be  exercised  by  a  State  when 
the  business  is  done  without  the  State,  though  it  be  done 
by  citizens  of  the  State.  Citizens  of  Connecticut  transact- 
ing business  in  Illinois  must,  therefore,  be  subject  to  the 
laws  of  Illinois,  and  not  to  the  laws  of  Connecticut. 
Again,  if  each  State  of  the  Federal  Union  has  dominion 
over  the  property  and  business  transacted  within  its  ter- 
ritory for  the  purpose  of  taxation,  that  dominion  must 
from  its  very  nature  be  absolute  and  exclude  the  dominion 
of  any  other  State  over  the  same  property  and  business. 
Again,  the  sovereignty  of  coequal  States  involves  a  full 
recognition  of  the  dominion  and  sovereignty  of  all  sister 
States;  and  hence  section  1,  Article  IV,  of  the  Federal 
Constitution  requires  that  "  full  faith  and  credit  shall 
be  given  to  the  public  acts,  records,  and  judicial  proceed- 
ings of  other  States."  Each  State,  then,  in  entering  the 
Federal  Union,  entered  into  a  contract  of  non-interfer- 
ence with  the  dominion  and  prerogatives  of  other  States ; 
and  it  will  not  be  disputed  that  the  power  of  taxation 
is  an  incident  of  sovereignty  or  dominion.  The  dominion, 
therefore,  of  one  State  for  the  purpose  of  taxation  over 
persons,  property,  business,  or  the  incidents  of  business, 
must  exclude  the  dominion  of  other  States  over  the  same 


502    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

persons,  property,  business,  and  incidents  of  business  at 
the  same  time.  Neither  in  constitutional  law  in  the 
United  States  nor  in  mathematics  can  the  same  property, 
persons,  business,  or  incidents  of  business  occupy  two 
places  and  two  sovereignties  at  the  same  time.  Hence, 
the  taxation  by  Connecticut  of  credits,  choses  in  action, 
bonds,  notes,  book  accounts,  verbal  and  other  contracts, 
the  incidents  of  actual  business  transacted  in  Illinois,  must 
be  in  legal  effect  extra-territorial  taxation  of  such  business, 
and  so  an  infringement  and  violation  of  the  sovereignty 
of  Illinois ;  or  else  it  must  be  assumed  that  business  does 
not  include  its  incidents,  or  the  whole  its  parts. 

Furthermore,  if  Connecticut  has  the  power  of  taxing 
extra-territorial  contracts  for  the  loan  of  money,  she 
has  the  power  to  fix  any  rate  and  to  discriminate  as  to 
the  States  upon  whose  citizens  the  burden  shall  fall;  or 
she  may  adopt  a  rate  that  shall  be  prohibitory  on  con- 
tracts made  by  her  citizens  with  citizens  of  designated 
States,  or  citizens  of  all  the  States,  as  her  caprice  may 
dictate. 

And  in  this  way  she  may  obstruct  and  to  a  great  ex- 
tent prevent  interstate  commerce,  which  the  United  States 
Supreme  Court  in  repeated  instances  (since  the  Kirtland 
case)  has  decided  that  the  separate  State  governments  can 
not  under  the  Federal  Constitution  do  either  directly  or 
indirectly. 

From  these  considerations,  reasoning,  and  precedents 
the  conclusions  of  Judge  Foster  would  seem  to  have  been 
incontrovertible — namely,  that  "  the  plaintiff,"  Kirtland, 
"  was  not  liable  to  taxation  "  in  Connecticut  "  for  debts 
owing  to  him  in  Illinois  " ;  and  inferentially  that,  al- 
though possibly  warranted  by  the  letter  of  the  statute, 
the  act  was  an  attempt  on  the  part  of  Connecticut  to 
exercise  extra-territorial  dominion  over  persons,  contracts, 
or  business,  and  was,  therefore,  unconstitutional  and  void. 
It  would  also  seem  to  be  clear  that  if  property  in  action 
(choses  in  action)  is  made  by  fiction  of  law  an  entity,  hav- 
ing a  situs  in  one  State  separate  from  the  property  which 
it  represents  in  another  State,  an  opportunity  for  the 
grossest  inconsistencies  will  be  perpetrated,  and  the  most 
inharmonious,  arbitrary,  and  capricious  tax  laws  and 
other  laws  will  be  enforced  by  conflicting  legislation  of 


FINAL  DECISION.  503 

States,  required  by  constitutional  obligations  to  "  give 
full  faith  and  credit  to  the  public  acts  of  other  States." 

The  Connecticut  Court  of  Errors,  however,  dissolved 
the  injunction  and  dismissed  the  petition,  Judge  Foster 
alone  out  of  a  full  bench  of  five  dissenting.  An  appeal 
being  next  taken  to  the  United  States  Supreme  Court,  the 
latter  (in  1879)  affirmed  the  judgment  of  the  Connecticut 
court,  the  essential  points  of  the  opinion  rendered  by 
Mr.  Justice  Harlan  being  as  follows :  "  The  debt  which  the 
plaintiff,  a  citizen  of  Connecticut,  holds  against  the  resi- 
dent of  Illinois  is  property  in  his  hands.  The  debt,  then, 
having  its  situs  at  the  creditor's  residence,  and  constitut- 
ing a  portion  of  his  estate  there,  both  he  and  the  debt  are, 
for  purposes  of  taxation,  Avithin  the  jurisdiction  of  the 
State.  It  is,  consequently,  for  the  State  to  determine, 
consistently  with  its  own  fundamental  law,  whether  such 
property  owned  by  one  of  its  residents  shall  contribute, 
by  way  of  taxation,  to  maintain  its  government.  Its  dis- 
cretion in  that  regard  is  beyond  the  power  of  the  Federal 
Government  to  supervise  or  control,  for  the  reason  that 
such  taxation  violates  no  provision  of  the  Federal  Consti- 
tution; as  manifestly  it  does  not,  as  supposed  by  counsel, 
interfere  in  any  true  sense  with  the  exercise  by  Congress 
of  the  power  to  regulate  commerce  among  the  several 
States ;  nor  does  it,  as  is  further  supposed,  abridge  the 
privileges  or  immunities  of  citizens  of  the  United  States, 
or  deprive  the  citizen  of  property  without  due  process  of 
law,  or  violate  the  constitutional  guaranty  that  the  citi- 
zens of  each  State  shall  be  entitled  to  all  the  privileges 
of  citizens  in  the  several  States. 

"  Whether  the  State  of  Connecticut  shall  measure  the 
contribution  which  persons  resident  within  its  jurisdiction 
shall  make  by  way  of  taxes  in  return  for  the  protection 
it  affords  them,  by  the  value  of  the  credits,  choses  in 
action,  bonds  or  stocks  which  they  may  own  (other  than 
such  as  are  exempted  or  protected  from  taxation  under 
the  Constitution  and  laws  of  the  United  States)  is  a 
matter  which  concerns  only  the  people  of  that  State,  and 
with  which  the  Federal  Government  can  not  rightfully 
interfere."  * 

*  100  U.  S.,  p.  499. 


504    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

It  remains  but  to  indicate  the  legitimate  deductions 
and  consequences  of  this  decision,  and  point  out  some  of 
the  circumstances  pertinent  to  the  treatment  of  the  case 
when  it  was  before  the  United  States  Court. 

In  the  first  place,  it  decided  that  debts  are  property; 
a  legitimate  deduction  from  which  is  that  the  creation  of 
debts  creates  property,  and  the  extinguishment  or  payment 
of  debts  annihilates  property;  a  conclusion  which  has  not 
received  the  sanction  of  the  judiciary,  or  found  a  place  in 
the  tax  system  of  any  country  other  than  the  United 
States.  Second,  the  decision  next  gave  a  miraculous  power 
to  residence,  by  making  it  capable  of  producing  property 
out  of  nothing.  Third,  it  sanctioned  the  right  of  a  State 
to  subject  its  citizens  to  double  taxation  in  respect  to  one 
and  the  same  property,  and  indorsed  the  justice  and  moral- 
ity of  the  act.  If  the  situs  of  the  property — in  the  sense 
of  an  actuality — and  the  owner  of  a  mortgage  upon  it, 
are  within  the  territory  of  one  and  the  same  State,  and  the 
actuality  is  fully  taxed  by  it,  the  separate  and  duplicate 
taxation  of  the  mortgage  would  not  be  sanctioned  except 
at  the  demand  of  the  debtor,  and  which,  as  equivalent  to 
his  asking  that  the  burden  of  his  debt  be  augmented,  he 
would  be  not  likely  to  make.  But  when  the  actuality  and 
the  mortgage  are  in  different  States  of  one  and  the  same 
nation,  as  was  the  situation  in  the  Kirtland  case,  a  differ- 
ent rule  is  held  to  prevail,  whereby  that  which  in  one  State 
was  regarded  as  an  incident  of  property,  and  as  such  prop- 
erly exempt  from  taxation,  becomes  by  mere  transference 
to  another  State  actual  property,  and  as  rightfully  subject 
to  taxation. 

Fourth.  If  debts  are  property,  and  rightful  subjects 
for  taxation,  the  sphere  of  the  application  of  this  principle 
should  not  be  restricted  to  debts  created  by  a  mortgage, 
but  should  embrace  every  form  of  indebtedness  created  by 
the  loan  of  capital — as  promissory  notes,  book  credits, 
and  policies  of  life  insurance — which  are  valuable  to  just 
the  extent  that  they  represent  the  indebtedness  of  the  com- 
pany issuing  them  to  the  holder  of  the  policy.  But  if  all 
the  forty-five  States  of  the  Federal  Union  or  the  differ- 
ent countries  of  the  rest  of  the  world  were  to  undertake 
to  pursue  capital  in  the  form  of  debts  due  their  respective 
citizens  for  the  purpose  of  taxation,  the  resulting  inex- 


CONSEQUEXCES  OF  THE   DECISION.  505 

tricable  and  disastrous  confusion  would  be  almost  beyond 
the  power  of  imagination. 

Fifth.  The  United  States  Supreme  Court  held  that 
there  was  nothing  in  the  form  of  taxation  involved  in  this 
case  that  interfered  with  the  power  of  the  Federal  Gov- 
ernment to  regulate  interstate  commerce;  but  if,  as  was 
further  held,  there  was  no  constitutional  limitation  on 
the  exercise  of  the  power  of  taxation  by  the  State  of  Con- 
necticut, and  that  the  Federal  Government  can  not  right- 
fully interfere  with  the  measure  of  taxes  that  a  State  may 
impose  on  credits  and  choses  in  action  that  its  citizens 
may  own,  it  is  difficult  to  see  why  Connecticut  might  not 
impose  such  taxes  on  all  extra-territorial  contracts  of 
pecuniary  value  as  would  greatly  impair  or  altogether 
prevent  the  commercial  intercourse  of  her  citizens  with 
the  citizens  of  other  States.  Finally,  nothing  more  clearly 
exhibits  the  anomalous  issues  involved  in  this  case  than 
the  fact  that  it  could  not  have  come  up  before  any  of  the 
courts  of  England,  France,  Belgium,  Germany,  Switzer- 
land, Italy,  or  Lower  Canada ;  for  in  none  of  these  coun- 
tries are  debts  regarded  in  the  light  of  property,  subject 
to  taxation. 

The  following  facts  pertinent  to  the  history  of  this 
case  are  also  worthy  of  record :  When  the  appeal  from  the 
decision  of  the  Connecticut  Court  of  Errors  was  made 
to  the  United  States  Supreme  Court,  one  of  the  most  dis- 
tinguished members  of  the  bar  of  the  State  of  Xew  York, 
who  in  repeated  instances  had  commanded  the  respect 
and  attention  of  the  former  court,  was  moved,  through 
his  abstract  interest  in  the  legal  and  economic  principles 
involved  in  the  case,  to  volunteer  his  services  for  its  future 
argument  and  presentation  to  this  high  and  final  tribunal. 
But  on  the  day  assigned  for  its  hearing,  serious  illness 
prevented  his  attendance  on  the  court,  and  the  case  in 
question  went  before  it  practically  without  verbal  argu- 
ment, and  mainly  on  the  presentation  of  a  brief.  Some 
years  after  the  decision  was  rendered,  the  then  chief  jus- 
tice of  the  court  (the  late  Morrison  E.  Waite)  told  the 
writer,  in  a  familiar  interview,  that  he  had  no  recollection 
of  the  case,  and  expressed  much  interest  in  a  presentation 
of  the  economic  points  involved  in  it. 

Another  fact  especially  worthy  of  the  consideration  of 
33 


506    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

those  who  have  been  instrumental  in  enacting  and  defend- 
ing statutes  in  respect  to  taxation  in  the  United  States 
which  find  no  justification  in  economic  principles,  or  any 
parallel  in  the  laws  or  fiscal  systems  of  other  countries 
of  high  civilization,  is,  that  since  the  final  decision  in  the 
Kirtland  case,  the  State  of  Connecticut,  where  it  origi- 
nated, has  derived  no  material  advantage  from  it.  Nay 
more,  a  somewhat  extensive  inquiry  made  of  its  tax  offi- 
cials renders  it  doubtful  if  a  single  extra-territorial  mort- 
gage has  since  been  made  subject  to  taxation  as  property 
in  the  form  of  a  debt  in  the  State  of  Connecticut.  And 
the  same  is  generally  believed  to  be  true  of  a  vast  number 
of  mortgages  of  real  estate — especially  of  farming  lands 
of  the  Western  States  of  the  Federal  Union — which  in 
recent  years  have  been  negotiated  and  sold  by  the  large 
number  of  the  so-called  "  loan  and  trust  companies  "  in 
the  Eastern  States.  The  fact  is,  the  American  people, 
whose  interests  have  called  their  attention  to  this  form 
of  taxation,  regard  it  as  unequal  and  unjust,  and  so  clearly 
in  the  nature  of  double  taxation  on  one  and  the  same  per- 
son and  property,  and  an  exaction,  that  evasion  of  it  is 
clearly  warranted;  the  whole  record  of  experience  under 
it  constituting  another  demonstration  of  the  fact  that 
under  a  popular  form  of  government  any  law  regarded 
as  unjust  or  unnecessary  can  not  be  efficiently  executed ; 
and  to  avoid  the  necessity  of  evasion  it  has  now  become 
almost  the  universal  practice,  in  executing  mortgages  in 
the  United  States,  that  if  the  mortgage  is  made  subject 
to  taxation  the  mortgagee  shall  pay  the  taxes  in  addition 
to  the  interest  on  the  loan  of  capital  represented  by  the 
mortgage. 

Note. — In  addition  to  what  may  be  termed  the  historiral  ele- 
ments of  this  celebrated  case,  the  more  strictly  le^al  features  of  it, 
as  set  forth  subsequent  to  the  action  of  the  United  States  Supreme 
Court,  are  here  pertinent  and  worthy  of  consideration: 

No.  1.  This  case  seems  from  its  very  nature  to  involve  questions 
of  conflict  of  State  dominion.  It  is  admitted  that  Mr.  Kirtland.  the 
plaintiff,  so  far  as  the  question  of  taxation  at  issue  is  concerned, 
has  not  been  assessed  and  taxed  upon  his  body,  person,  poll,  or 
head,  or  for  any  substance,  the  embodiment  of  labour,  and  Avhich 
alone  constitiites  property,  owned  or  possessed  by  him  within  the 
territory  of  Connecticut;  nor  for  any  business  transacted  by  him 
within  the  State.  The  plaintiff  has,  however,  been  assessed  and 
taxed  for  dealing  in  money  or  doing  the  business  of  loaning  money, 


LEGAL  FEATURES  OF  THE  CASE.  507 

by  an  assessment  and  taxation  of  bonds  and  mortgages  made  in 
Illinois — the  necessary  incidents  and  evidence  of  the  business  of 
money  lending,  performed  by  himself  or  through  a  resident  agent 
in  the  State  of  Illinois.  It  is  conceded  that  the  loans  were  actually 
made  at  Chicago  in  the  State  of  Illinois,  as  the  bonds  and  mort- 
gages taken  state  that  all  the  business  and  acts  connected  with  the 
loaning  and  reloaning  were  actually  done,  from  time  to  time,  there, 
that  the  obligations  were  payable  there,  and  that  the  contracts 
of  loan  were  strictly  Illinois  contracts,  to  be  interpreted  as  valid 
or  invalid  and  as  to  their  force  and  effect  according  to  the  laws 
of  that  State. 

The  State  of  Illinois  imposes  a  tax  on  resident  agents  making 
loans  in  that  State;  but  it  is  not  important  to  inquire  whether 
in  this  instance  the  business  of  loaning  was  done  through  a  resi- 
dent agent  or  what  that  State  does  actually  tax,  but  what  she 
can  constitutionally  tax  by  virtue  of  her  dominion  and  sover- 
eignty. Illinois  can  undoubtedly  tax,  if  the  tax  is  not  discrimi- 
nating but  uniform  on  residents  and  non-residents,  all  occupa- 
tions and  also  all  business  transacted  within  her  borders.  She 
can  tax  money  dealers  or  money  lenders  by  license  or  otherwise, 
and  she  can  impose  stamp  or  other  taxes  and  to  any  degree,  in  her 
discretion,  on  all  contracts  at  the  time  when  made  within  her  juris- 
diction. No  other  State  has  concurrent  jurisdiction  over  any  legiti- 
mate subject  of  taxation  within  her  jurisdiction.  Her  sovereignty 
in  taxation  is  absolute  except  as  limited  by  the  national  Constitu- 
tion. But  the  sovereignty  of  coequal  States  involves  a  full  recogni- 
tion of  the  dominion  and  sovereignty  of  all  sister  States,  and  hence 
section  1,  Article  IV,  of  the  United  States  Constitution  requires  that 
"  full  faith  and  credit  shall  be  given  to  the  public  acts,  records,  and 
judicial  proceedings  of  other  States."  This  is  a  compact  of  non- 
interference in  the  dominion  of  other  States  in  matters  of  taxa- 
tion or  in  reference  to  other  subjects  of  State  dominion.  The  power 
of  taxation  is  an  incident  of  sovereignty  or  of  dominion.  The 
dominion,  therefore,  of  one  State  for  the  purpose  of  taxation  over 
persons,  property,  or  business,  or  the  incidents  of  business,  must 
exclude  the  dominion  of  other  States  over  the  same  persons,  prop- 
erty, business,  and  incidents  of  business  at  the  same  time.  Neither 
in  constitutional  law  in  this  country  nor  in  mathematics  can  the 
same  persons,  property,  business,  and  incidents  of  business  occupy 
two  places  or  sovereignties  at  the  same  time.  The  taxation  by  Con- 
necticut of  credits,  choses  in  action,  bonds,  notes,  book  accounts, 
verbal  and  other  contracts,  the  incidents  of  actual  business  trans- 
acted in  Illinois,  must  be  in  legal  effect  extra-territorial  taxation 
of  a  part  of  such  business,  or  otherwise  it  must  be  assumed  that 
the  incident  is  not  a  part  of  the  principal.  The  making  of  con- 
tracts is  of  itself  a  business  in  the  strictest  sense,  nor  can  any 
business  exist  without  the  power  to  make  contracts  written  or 
verbal.  Money  can  not  be  loaned  imless  there  is  a  business  of 
lending  money,  and  for  the  time  being  the  vocation  of  a  money 
lender.  The  amount  or  duration  of  a  business  in  a  State  can 
have  no  influence  on  the  question  of  the  jurisdiction  of  the  State 
over  the  business  or  the  transaction.  A  State  can  tax  all  sales 
at   auction,   including   the   sales   of   goods   in   unbroken   packages 


508    THE   THEORY   AND   PRACTICE  OF   TAXATION. 

owned  by  nonresidents  and  just  brought  into  the  State  and  sold 
by  nonresidents  or  by  resident  agents  (Woodruff  vs.  Perham,  8 
Wallace,  123).  In  New  York  mere  wandering  peddlers  are  taxable 
on  money  invested  in  business  in  every  town  in  which  they  peildle. 
If  actually  assessed  in  more  than  one  town  the  same  year  the 
remedy  is  to  appeal  to  the  assessors  (Hill  vs.  Crosby,  26  Howard, 
par.  413).  It  would  -seem  that  business,  occasional,  transient,  or 
permanent,  transacted  in  a  State  by  a  resident  or  nonresident,  by 
the  force  of  State  sovereignty,  may  be  made  subject  to  a  uniform 
rule  of  taxation. 
^  Extraterritorial  taxation  can  have  no  force  in  American  juris- 

yVi.^        prudence.     Protection  and  taxation  are  correlative  terms.     Protee- 
<y  tion   to   that   portion   of  property   not   taken   or   absorbed    by   the 

tax  is  the  consideration  or  compensation  for  all  legitimate  taxa- 
tion, and  extrateiTitorial  taxation  is  therefore  a  mere  arbitrary 
"  taking  of  private  property  without  due  process  ot  law."  When 
property  is  not  protected  by  the  law  of  a  country  or  of  a  State 
and  beyond  the  process  of  its  courts,  there  can  be  no  power  to 
tax  it  (this  principle  is  manifestly  as  applicable  to  business  as  to 
property — Rice  vs.  The  United  States,  4  Wheaton,  246).  In  the  for- 
eign-held bond  case,  15  Wallace  319,  the  United  States  Supreme 
Court  said  that  "  property  lying  beyond  the  jurisdiction  of  the 
State  is  not  a  subject  upon  which  her  taxing  power  can  be  legiti- 
mately exercised.  Indeed,  it  would  seem  that  no  adjudication 
should  be  necessary  to  establish  so  obvious  a  proposition.  The 
power  of  taxation,  however  vast  in  its  character  and  searching  in 
its  extent,  is  necessarily  limited  to  subjects  within  the  jurisdic- 
tion of  the  State.  These  subjects  are  persons,  property,  and 
business." 

These  admitted  facts  and  the  opinions  cited  indicate  that  Con- 
necticut is  endeavouring  in  this  case  to  enforce  an  extraterritorial 
tax  on  extraterritorial  business,  and  a  further  consideration  of  the 
subject  might  here  be  dismissed,  but  a  more  detailed  examination 
may  show  more  clearly  the  unconstitutionality  of  this  arbitrary 
exaction. 


V 


y 


Effect  of  the  Fourteenth  Amendment  of  the 
Constitution  of  the  United  States  in  Eespect  to 
the  Arbitrary  Appropriation  of  Property  by  Taxa- 
tion OR  Otherwise. — Another  point  preliminary  to  re- 
form, and  in  respect  to  which  it  is  important  that  there 
should  be  a  clear  nnderstandinsc  on  the  part  of  the  people, 
is  that  there  is  a  broad  and  philosophical  distinction  be- 
tween "  taxation  "  and  "  arbitrary  "  taking.  It  is  often 
assumed  that  a  State,  because  of  its  sovereignty,  may, 
through  form  of  law  and  delegated  authority,  deal  with 
the  persons  and  property  of  its  subjects  as  it  may  see 
fit ;  and,  repugnant  as  this  assumption  is  to  the  principles 
which  are  assumed  to  constitute  the  foundation  of  all  free 


THE  FOURTEENTH  AMENDMENT. 


509 


government,  it  is  not  to  be  denied  that  previous  to  the 
adoption  of  the  fourteenth  amendment  of  the  Constitu- 
tion of  the  United  States  in  1868,  it  would  be  difficult  to 
show  that  restraint  existed  upon  the  complete  sovereignty 
of  the  States  of  the  Federal  Union  over  persons  and  prop- 
erty within  their  unquestioned  jurisdiction;  the  right  to 
hold  a  certain  class  of  their  population  in  slavery,  and  the 
right  to  take  private  property  for  public  purposes  without 
making  any  compensation,  being  illustrative  of  the  exercise 
of  such  arbitrary  powers  in  the  utmost  extreme.  But  since 
the  decision  of  the  United  States  Court  in  the  Kirtland 
case,  the  same  court  has  for  the  first  time  given  a  decided 
opinion  on  this  subject,  unmistakably  as  follows :  "  There 
is  no  such  thing  in  the  theory  of  our  Government — State 
or  national — as  unlimited  power  in  any  of  these  branches. 
The  executive,  the  legislative,  and  the  judicial  depart- 
ments are  all  of  limited  and  defined  powers.  There  are 
limitations  of  power  which  arise  out  of  the  essential 
nature  of  all  free  governments,  implied  reservations  of 
individual  rights,  without  which  the  social  compact  could 
not  exist,  and  which  are  respected  by  all  free  governments 
entitled  to  the  name.  Among  these  is  the  limitation  of 
the  right  of  taxation"  (Loan  Association  vs.  Topeka, 
20  Wallace,  658). 

In  connection  with  this  general  subject,  the  opinion 
expressed  by  Chief-Justice  Marshall  is  also  historically 
worthy  of  notice.  It  had  its  origin  in  the  case  of  Baron 
vs.  The  Mayor  of  Baltimore,  in  which  the  city  of  Balti- 
more, in  the  exercise  of  its  corporate  authority  over  the 
harbour,  etc.,  so  diverted  certain  streams  of  water  that 
they  made  deposits  of  sand  and  gravel  near  the  plaintiff's 
wharf,  and  thereby  prevented  the  access  of  vessels  to  it. 
A  writ  of  error  was  taken  from  the  judgment  of  the  Mary- 
land Court  of  Appeals,  refusing  damages,  to  the  Supreme 
Court  of  the  United  States,  on  the  ground  that  this  de- 
cision was  in  violation  of  the  fifth  amendment  to  the 
Constitution  of  the  United  States,  which  prohibits  the 
taking  of  public  property  for  private  use  without  just 
compensation;  the  plaintiff  contending  further,  "that 
this  amendment,  being  in  favour  of  the  liberty  of  the  citi- 
zens, ought  to  be  so  construed  as  to  restrain  the  legisla- 
tive power  of  a  State,  as  well  as  that  of  the  United  States." 


r 


'^. 


510    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

The  court,  however,  by  Chief-Justice  Marshall,  held  that 
this  amendment  of  the  Constitution  "  is  intended  solely 
as  a  limitation  on  the  exercise  of  power  hy  the  Government 
of  the  United  States,  and  is  not  applicable  to  the  legisla- 
tion of  the  States  " ;  which  was  equivalent  to  saying,  viz., 
that  if  the  several  States  choose  to  arbitrarily  take  or  con- 
fiscate the  property  of  any  of  its  citizens,  there  was  no 
higher  sovereignty  to  restrain  them. 

At  the  close  of  the  late  civil  war,  however,  when  it  was 
deemed  desirable  by  Congress  to  impose  some  restrictions 
on  the  reconstructed  States,  so  as  to  prevent  the  former 
disloyal  element  of  their  population,  in  the  event  of  the 
contingency  of  regaining  legislative  power,  from  deal- 
ing arbitrarily  or  unjustly  with  any  class  of  their  fellow- 
citizens  who  might  happen  to  be  obnoxious,  the  following 
clause  was  made  a  part  of  the  fourteenth  amendment,  and 
through  its  adoption  has  become  the  supreme  law  of  the 
land :  "  Nor  shall  any  State  deprive  any  person  of  life, 
liberty,  or  property  without  due  process  of  law.'' 

Now,  the  force  of  this  amendment  obviously  depends 
upon  the  meaning  of  the  last  clause,  "  due  process  of 
law  " ;  and  it  is  also  clear  that  "  due  process  of  law  "  does 
not  mean  a  procedure  in  conformity  with  ajiy  law  which 
a  State  Legislature  might  enact,  or  with  any  provision 
which  the  people  of  a  State  might  put  in  their  Constitu- 
tion ;  for  if  such  be  the  interpretation  of  this  phrase,  then 
this  clause  of  the  fourteenth  amendment  referred  to  would 
practically  read  as  follows :  "  Nor  shall  any  State  deprive 
any  person  of  life,  liberty,  or  property,  except  in  conform- 
ity with  such  laivs  as  it  may  enact." 

The  general  meaning  of  the  phrase  "  due  process  of 
law,"  and  of  the  synonymous  expression  "  law  of  the 
land,"  has,  however,  been  made  so  often  the  subject  of 
discussion  and  legal  decision  as  to  be  in  no  sense  a  matter 
of  doubt.  Mr.  Webster,  in  the  Dartmouth  College  case, 
defined  these  terms  as  follows :  "  By  the  law  of  the  land 
is  most  clearly  intended  the  general  law,  which  hears  be- 
fore it  condemns,  which  proceeds  upon  inquiry,  and 
renders  judgment  only  after  trial.  The  meaning  is  that 
every  citizen  shall  hold  his  life,  liberty,  property,  and 
immunities  under  the  protection  of  the  general  rules 
which  govern  society.    Everything  which  may  pass  under 


DUE   PROCESS  OF  LAW.  511 

the  form  of  an  enactment  is  not  the  law  of  the  land." 
And  in  commenting  on  this  definition,  Justice  Cooley, 
in  his  treatise  on  Constitutional  Limitations,  uses  this 
language :  "  This  definition  of  Mr.  Webster  is  apt  and 
suitable  as  applied  to  judicial  proceedings,  which  can  not 
be  valid  unless  they  proceed  upon  inquiry,  and  render 
judgment  only  after  trial.  It  is  entirely  correct,  also,  in 
assuming  that  a  legislative  enactment  is  not  necessarily 
the  law  of  the  land.  The  words  '  by  the  law  of  the  land,' 
as  used  in  the  Constitution,  do  not  mean  a  statute  passed 
for  the  purpose  of  working  wrong.  That  construction 
would  render  the  restriction  absolutely  nugatory,  and  turn 
this  part  of  the  Constitution  into  mere  nonsense.  Due 
process  of  law,"  therefore,  continues  Judge  Cooley,  after 
reviewing  the  interpretations  of  various  other  authorities, 
means  "  such  an  exertion  of  the  powers  of  the  Govern- 
ment as  the  settled  maxims  of  law  sanction,  and  under 
such  safeguards  for  the  protection  of  individual  rights 
as  these  maxims  prescribe." 

"  The  very  idea  of  taxation,  the  very  elements  of  the 
terms  tax — taxation — implies  that  it  is  an  imposition  or 
levy  upon  persons  or  property  in  due  course  or  order,  treat- 
ing all  alike  in  the  same  condition  and  circumstances. 
The  burden  of  taxation  must  be  equalized  by  this  mode 
in  order  to  preserve  its  character.  It  is  in  any  view  tak- 
ing private  property  for  public  use;  and  it  can  not  be  so 
taken  without  an  equivalent  both  as  to  the  Government 
or  the  citizens.  It  is  not  competent  for  the  Government 
to  convert  private  property  to  public  use,  by  way  of  taxa- 
tion and  without  compensation,  any  more  than  by  any 
other  mode." — Redfield. 

Now,  the  exact  applicability  of  the  fourteenth  amend- 
ment in  restraining  the  several  States  in  the  exercise  of 
their  so-called  "  taxing  powers  "  would  appear  to  be  this : 

Taxation  implies  protection.  It  is  held  by  every  au- 
thority to  be  the  equivalent  for  the  protection  which  the 
Government  affords  to  the  property  of  its  citizens.  When, 
therefore,  a  State  (like  Connecticut)  taxes  property, 
either  directly  or  indirectly,  out  of  its  territory  and  juris- 
diction, which  it  can  not  protect,  and  which  its  processes 
can  not  reach,  the  act  is  not  taxation,  but  a  mere  arbitrary 
exercise  of  power ;  not  in  accordance  with  any  "  process 


512    THE   THEORY  AND   PRACTICE  OF  TAXATION. 

of  law,"  and  forbidden  by  the  Constitution  of  the  United 
States,  and  as  involving  a  principle  under  the  Constitu- 
tion. Furthermore,  the  question  of  restraining  a  State 
from  the  exercise  of  such  arbitrary  powers  would  seem 
to  be  one  legally  within  the  right  of  any  citizen  aggrieved, 
in  virtue  of  the  fourteenth  amendment,  to  carry  from  the 
courts  of  his  own  State  to  the  Supreme  Court  of  the 
United  States.  As  another  method  by  which  a  citizen  of 
a  State  aggrieved  by  the  imposition  of  an  ex-territorial 
tax  might  test  the  constitutionality  of  the  same,  the  fol- 
lowing is  also  worthy  of  consideration : 

A  citizen  of  Connecticut,  for  example,  taxed  on  per- 
sonal property  in  Illinois,  might  obtain  a  writ  of  certiorari 
in  an  Illinois  court,  and  raise  the  question  that,  inasmuch 
as  personal  property  is  held  in  law  to  follow  the  person, 
the  property  in  question  was  not  taxable  in  Illinois.  And 
after  the  courts  of  Illinois  had  rendered  an  adverse  judg- 
ment, as  they  undoubtedly  would,  the  owner  taxed  for  the 
same  property  in  Massachusetts  could  obtain  a  writ  of 
certiorari  in  the  courts  of  that  State,  and  raise  the  fol- 
lowing questions : 

1.  Want  of  jurisdiction  in  respect  to  the  property  on 
the  part  of  the  State  of  Massachusetts. 

2.  Violation  of  the  Constitution  of  the  United  States 
in  denying  full  faith  and  credit  to  the  "public  acts  (tax 
laws  of  Illinois)  and  judicial  proceedings"  of  a  sister 
State. 

It  needs  no  argument  to  prove  that  under  the  provi- 
sions of  the  Constitution  of  the  United  States,  above  re- 
ferred to,  both  the  laws  and  judicial  proceedings  of  one 
State  are  as  valid  and  as  much  to  be  respected  in  another 
State  as  the  laws  and  judicial  proceedings  of  the  latter 
State  itself.  If  the  courts  of  Massachusetts,  following 
precedents  in  that  State,  should  decide  that  personal  prop- 
erty situated  beyond  the  State  follows  the  person  residing 
in  Massachusetts,  and  so  disregards  the  judicial  proceed- 
ings and  public  acts  of  Illinois,  a  question  under  the  Con- 
stitution of  the  United  States  would  arise,  which  would 
give  jurisdiction  in  the  United  States  Court.  And  as  one 
and  the  same  thing  can  not  occupy  two  places  at  the  same 
time,  the  Federal  court  must  finally  decide  in  which  State 
is  the  situs  of  the  property  for  taxation  in  the  case  pre- 


I 


APPLICATION   OF   THE  RULE.  513 

sented.  The  principle  involved  in  this  case  would  seem 
to  be  identical  with  an  attempt  on  the  part  of  a  State 
to  convict  a  citizen  for  an  offence  committed  beyond  her 
jurisdiction,  in  respect  to  which  judgment  had  already 
been  rendered  in  a  sister  State,  where  the  offence  had  been 
committed. 

As  further  bearing  upon  this  subject,  reference  is  made 
to  the  following  judicial  decisions :  The  Court  of  Errors 
of  New  York,  some  years  ago,  decided  that  private  prop- 
erty could  not  be  forcibly  taken  for  a  private  road,  even  if 
compensation  was  made  by  the  party  benefited,  because 
the  act  Avas  the  taking  property  arbitrarily,  and  not  ac- 
cording to  due  process  of  law. 

The  national  bank  act  acknowledges,  and  the  courts  of 
the  United  States  have  so  held,  that  a  bank  has  a  situs 
and  its  shares  a  situs  where  the  bank  is  located,  and  not 
where  the  stockholders  reside.  The  national  bank  act, 
therefore,  discards  the  usual  State  principle  of  taxation, 
that  personal  property  follows  the  owner.* 

*  See  the  case  of  Northern  Central  Railroad  is.  Jackson,  cited 
in  Chapter  XX,  p.  448. 


CHAPTER  XXIV. 


THEORY    AND   PRACTICE    OF    INCOME    TAXATION. 


i.4 


Commencing  with  first  principles,  the  general  taxa- 
tion of  incomes  is  theoretically  one  of  the  most  equitable, 
productive,  and  least  exceptionable  forms  of  taxation. 
What  can  be  fairer  than  that  each  citizen  should  annually 
contribute  an  equitable  and  Just  portion  of  his  net  gain  or 
income  for  the  support  of  the  government  or  State  under 
which  he  has  elected  to  live,  and  in  default  of  which  he 
would  not  be  likely  to  have  either  gain,  income,  or  prop- 
erty? and  such  a  method  of  supporting  a  government 
.would  therefore  seem  to  be  in  accord  in  the  highest  degree 
with  those  canons  or  maxims  of  taxation  which  are  re- 
garded by  nearly  all  economists  and  jurists  as  the  highest 
embodiment  of  human  wisdom  on  this  subject. 

And  yet  the  proposition  is  hardly  open  to  dispute  that 
a  general  income  tax,  with  such  administrative  features 
as  are  essential  to  make  it  desirable  as  a  revenue  measure, 
can  not  be  successfully  administered  under  a  free  and 
popular  form  of  government.  On  this  point  the  com- 
paratively recent  experience  of  the  United  States,  which 
few  now  remember,  ought  to  be  most  instructive.  Thus, 
in  1869,  under  a  Federal  law  assessing  all  incomes  in  ex- 
cess of  $1,000,  and  with  a  corps  of  trained  officials  to  exe- 
cute it,  only  259,388  persons  out  of  a  population  in  that 
year  of  about  37,000,000  acknowledged  the  receipt  of  any 
•  taxable  income;  and  in  1872,  when  the  exemption  had 
been  raised  to  $2,000  and  the  population  had  increased 
to  over  39,000,000.  the  number  of  persons  who  had  an 
income  tax  ran  down  to  72,949 — leaving  a  presumption 
that  every  one  of  those  who  did  not  pay  and  was  made  sub- 
ject to  inquisition  by  the  officials  in  respect  to  his  in- 
come, made  oath  that  he  was  not  in  receipt,  from  wages, 
salary,  interest,  or  profits,  of  an  income  liable  to  taxa- 
514 


i 


OPPOSITION  TO  INCOME  TAX.  515 

< 

^«^tion  in  excess  of  $3,000.    From  an  economic  point  of  view 
j.  "it  would  be  a  misnomer  to  call  such  a  result  "taxation"; 
from  a  moral  point  of  view  its  characterization  as  "  ap- 
^ palling"  would  not  be  inappropriate. 
5        Another  point  which  may  also  be  accepted  as  theo- 
^sljetically  beyond  dispute  is,  that  if  all  were  willing  to  live 
r'up  to  and  carry  out  the  correct  and  rational  theory  of  an 
income  tax,  there  would  be  little  use  for  tariffs,  custom- 
uses,  internal-revenue  departments,  and  excises.      But 
that  is  exactly  what  human  nature,  as  we  find  it,  will  not 

T      agree  to  have  done  in  the  one  case,  or  to  do  in  the  other. 
P^In  fact,  there  is  hardly  any  other  one  thing  which  human 
rS  nature  so  much  dislikes  to  do  as  to  pay  taxes,  although' - 
,  ^Ht  is  capable  of  demonstration,  even  to  a  most  obtuse  in-       ^ 
^  ^tellect,  that  there  is  no  one  act  which  can  be  performed  by  '^-^  f  ^ 


a  community  that  brings  in  so  large  a  return  to  the  credit 
of  civilization  and  general  happiness  as  the  judicious  ex- 


;^  "^penditure  for  public  purposes  of  a  fair^ercentage  of  the 
.'  J  -J  general  wealth  collected  under  an  equitable  system  of  tax- 

>  y  ation. 
^  o^  Now,  an  income  tax  is  the  very  essence  of  personal 
^  taxation,  and  although  in  respect  to  a  specialty  of  appli- 
cation it  has  been  decided  by  the  Supreme  Court  of  the 
United  States  not  to  be  a  direct  tax/lt  comes  to  the  ordi- 
nary taxpayer  most  directly ;  and  ^is  is  the  first  or  one 
of  the  most  influential  reasons  why  it  is  not  liked.  The 
world's  experience  is  to  the  same  effect  in  respect  to  a 
^'  poll  "  or  "  head  "  tax.  This  in  a  popular  sense  is  almost 
universally  regarded  as  a  direct  tax,  and  altogether  per- 
sonal in  its  incidence.  It  has  accordingly  always  been  ^^ 
most  unpopular.  Its  collection  has  been  the  occasion  of  cZ 
great  civil  disturbances  in  the  world's  history,  and  it  has  ''  ^\ 
been  denied  a  place  by  popular  vote  or  constitutional  provi-  ^ 
sion,  in  the  tax  system  of  most  of  the  States  of  the  Fed-  C 
eral  Union.-  ^ 
A  second  and  more  important  reason  why  a  general  ^^ 
income  tax  powerfully  antagonizes  popular  sentiment  is  "^^^^ 
that  its  efficient  administration,  or  revenue  productiveness,  '\ 
requires  that  every  person  liable  to  taxation  in  respect  to  ^ 
his  annual  net  gains,  profits,  or  income  shall  make  to  a  >; 
Government  official  an  exhibit  of  the  financial  condition  F' 
of  his  estate,  business,  or  profession;  for,  in  default  of  \ 


<::^c- 


516    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

such  an  exhibit,  any  basis  for  assessment  must  be  a  mere 
matter  of  conjecture  on  the  part  of  the  assessor,  with  a 
result  devoid  of  any  pretence  to  correctness  or  equality. 
But  such  an  exhibit,  necessarily  disclosing  to  a  greater 
or  less  degree  his  financial  condition  to  his  business  com- 
petitors, and  to  a  curious,  gossiping  public,  no  man  will 
willingly  make;  and  he  naturally  regards  it  as  in  the 
nature  of  an  outrage  on  the  part  of  the  government  that 
seeks  to  compel  him  to  do  it.  Hence  the  successful  ad- 
ministration of  an  income  tax  involves  and  requires  the 
use  of  arbitrary  and  inquisitorial  methods  and  agencies, 
which,  perfectly  consistent  with  a  despotism,  are  entirely 
antagonistic  to  and  incompatible  with  the  principles  and 
maintenance  of  a  free  government. 

Practically,  as  John  Stuart  Mill  has  expressed  it,  "  the 
fairness  which  belongs  to  the  principle  of  an  income  tax 
can  not  be  made  to  attach  to  it  in  practice  " ;  and,  "  while 
apparently  the  most  just  of  all  modes  of  taxation,  it  is 
in  effect  more  unjust  that  many  others  that  are  prima 
facie  more  objectionable."  And  again  he  says,  "  The  tax, 
on  whatever  principles  of  equality  it  may  be  imposed,  is 
in  practice  unequal  in  one  of  the  worst  ways,  falling  heav- 
iest on  the  most  conscientious,"  and  "  should  be  reserved 
as  an  extraordinary  resource  for  great  national  emergen- 
cies, in  which  the  necessity  of  a  large  additional  revenue 
overrules  all  objections." 

Mr.  Gladstone,  speaking  in  1853,  also  said,  "  I  believe 
it"  (an  income  tax)  "does  more  than  any  other  tax  to 
demoralize  and  corrupt  the  people."  And  Mr.  Disraeli 
subsequently  in  Parliament  expressed  his  agreement  with 
Mr.  Gladstone  by  saying,  "  The  odious  features  of  this 
tax  can  not  by  any  means  be  removed  or  modified  " ;  and 
with  these  opinions  nearly  all  educated  financiers  and 
economists  are  in  complete  unison,  except  a  comparatively 
few  persons  who,  educated  in  Germany,  have  embraced 
the  idea  that  because  income  taxes  are  effectively  collected 
in  countries  having  a  despotic  form  of  government,  they 
can  be  equally  collected  in  countries  under  a  popular  gov- 
ernment.* 


*  As  the  opinions  of  Enjrlish  authorities  (above  referred  to)  have 
been  disparaged  on  the  ground  that  they  represent  old-time  utter- 


TAXES  ON  INCOME  IN  PRANCE.  517 

In  support  of  these  conclusions  attention  is  asked  to 
the  following  historical  evidence.  It  is  well  known  that 
one  of  the  principal  causes  which  led  to  the  great  French 
Kevolution  was  the  inequality  (class  exemptions)  and  mul- 
tiplicity of  taxes ;  and  one  of  the  first  acts  of  the  National 
Assembly  of  1789  was  to  repeal  all  inquisitorial  and  arbi- 
trary taxes  of  every  name  and  nature.*  And  although, 
from  that  day  to  this,  France,  by  reason  of  a  national 
debt  greater  than  that  ever  borne  by  any  other  nation,  has 
been  compelled  to  resort  to  almost  every  expedient  for  ob- 
taining revenue,  it  has,  theoretically  at  least,  endeavoured 
to  maintain  a  system  of  general  taxation  not  inconsistent 
with  the  above  principle. 

Under  the  head  of  indirect  taxation,  however,  which 
includes  the  general  direction  of  the  stamp  tax,  "  domainal 
public  land "  revenues,  customs,  duties  on  imports,  salt 
and  sugar  taxes,  and  monopolization  of  the  manufacture  of 
powder  and  the  sale  of  tobacco  and  matches,  the  so-called 
communes  of  France  have  a  right  to  "  levy  a  tax  of  three 
per  cent  on  the  annual  income  (interests,  dividends,  etc.) 
of  personal  property,  such  as  French  or  foreign  securities, 
shares,  bonds  issued  by  departments,  industrial  establish- 
ments, independent  of  the  stamp  or  transfer  tax,  but  not 
affecting  the  bonds  of  the  state  (or  rentes),  nor  associa- 
tions of  partnerships  in  a  collective  name,  nor  private  obli- 
gations, mortgages,  and  the  like."  "  Religious  societies 
are  taxed  five  per  cent  on  the  income  of  their  capital." 
In  1886  the  revenue  derived  from  the  above  taxes  was  re- 
turned at  47,200,000  francs  ($9,400,000),  representing  in 
1886  a  capital  of  1,500,000,000  francs,  of  which  131,000,- 
000  francs  represented  properties  situated  in  France. 

The  following  sentiment  or  legal  principle,  laid  down 

ances  and  imperfect  fiscal  experiences,  attention  is  here  asked  to 
the  following?  extract  from  a  letter  of  Prof.  Thorold  Rogers,  late 
member  of  the  British  House  of  Commons  and  Professor  of  Political 
Economy,  University  of  Oxford,  under  date  of  Aujajust  25,  1884: 
"  Nobody  defends  the  income  tax.  It  was  first  imposed  on  the 
tyrant's  plea  that  the  administration  can  not  do  without  it,  and 
it  has  been  continued  for  the  same  reason.  Every  Chancellor  of  the 
Exchequer  has  condemned  it  in  principle  and  has  continued  it  in 
practice.  It  is  not  wonderful,  therefore,  that,  fortified  by  these 
avowals,  people  who  can  evade  the  tax  do  so." 
*  See  ante,  p.  117. 


518    THE  THEORY  AND  PRACTICE   OF   TAXATION. 

by  the  United  States  Supreme  Court  in  the  case  of  Boyd 
vs.  United  States  (116  United  States  Reports,  631,  632), 
though  often  apparently  little  regarded  by  the  legal  pro- 
fession, would,  however,  seem  in  itself  to  constitute  a 
complete  and  insuperable  barrier  against  any  resort  in 
the  United  States  to  the  prosecution  of  arbitrary  or  in- 
quisitorial inquiries,  which  must  of  necessity  be  instituted 
and  prosecuted  by  tax  otficials  for  the  obtaining  of  any 
personal  and  warrantable  data  for  the  correct  assessment 
of  an  income  tax,  the  language  of  the  court  being  as 
follows : 

"  Any  compulsory  discovery,  by  extorting  the  party's 
oath  or  compelling  the  production  of  his  private  books 
and  papers  to  convict  him  of  a  crime  or  to  forfeit  his  prop- 
erty, is  contrary  to  the  principles  of  a  free  government. 
It  is  abhorrent  to  the  instincts  of  an  Englishman.  It 
is  abhorrent  to  the  instincts  of  an  American.  It  may  suit 
the  purposes  of  despotic  power,  but  it  can  not  abide  the 
pure  atmosphere  of  political  liberty  arid  personal  free- 
dom." 

So  much,  then,  for  what  may  be  termed  the  philosophy 
of  an  income  tax.  Consideration  of  some  of  its  most  in- 
structive experiences  is  next  in  order. 

The  old  Romans,  who  never  gave  much  place  to  senti- 
ment in  their  laws  or  policy,  had  an  income  tax  in  the 
days  of  the  empire,  and  they  overcame  all  difficulties  con- 
nected with  its  administration  in  the  following  manner: 
They  authorized  their  tax  officials,  in  cases  where  the 
citizen  did  not  in  their  opinion  make  a  satisfactory  pay- 
ment, or  was  suspected  of  false  statements  in  respect  to 
his  income  or  property,  to  administer  torture ;  and  the 
historian  Gibbon,  in  writing  about  this  feature  of  Roman 
history,  justifies  it  in  a  measure  in  the  following  language : 

"  The  secret  wealth  of  commerce,  and  the  precarious 
profits  of  art  and  labour,  are  susceptible  only  of  a  discre- 
tionary valuation ;  and  as  the  person  of  the  trader  sup- 
plies the  want  of  a  visible  and  permanent  security,  the  pay- 
ment of  the  imposition,  which  in  the  case  of  a  land  tax 
may  be  obtained  by  the  seizure  of  property,  can  rarely 
be  extorted  by  any  other  means  than  corporeal  punish- 
ment." 

That  the  Roman  income-tax  system  was  successful  as 


ASSESSMENTS  IN   FRANCE.  519 

respects  revenue  is  probable,  but  it  was  also  destructive  ', 
of  the  state;  for  the  testimony  of  history  is  that  its  people  i 
finally  welcomed  the  inroad  of  the  barbarians  as  a  lesser y 
evil  than  the  continuance  of  their  tax  system.  __^-^ 

As  already  intimated,  there  has  been  nothing  cor- 
responding to  a  general  income  tax,  with  personal  inquisi- 
torial features,  in  the  fiscal  system  of  France  since  the 
Eevolution  of  1789.  In  place  of  it,  taxes  are  levied  on 
the  indicia  or  signs  which  each  citizen  presents  of  his 
possession  of  income  or  personal  property;  and  the  rents 
or  rental  value  of  the  premises  he  occupies  for  residence 
or  business,  and  the  doors  and  windows  of  buildings,  are 
regarded  as  such  signs  or  indicia.  This  tax  applies  to  the 
doors  and  windows  into  streets  and  courtyards  and  gar- 
dens of  houses  or  workshops.  In  general,  all  openings 
giving  light  or  air  to  houses  and  buildings  for  human 
habitations,  shops,  workshops,  sheds,  warehouses,  etc.,  are 
taxable,  whatever  their  shape,  dimensions,  or  fastening 
may  be.  Thus,  all  openings  to  afford  light  to  the  stairs, 
to  a  habitable  room  opening  on  a  covered  yard,  of  a  habit- 
able house  used  for  rural  purposes,  or  the  door  of  a 
garden  leading  to  a  dwelling,  all  are  taxable.  The  open- 
ings to  new  buildings  become  taxable  as  soon  as  they  are 
habitable.  If  at  the  time  of  making  the  tax  roll  some 
rooms  in  a  new  house  are  not  yet  habitable,  the  openings 
of  such  rooms  are  for  the  time  exempt.  If  the  entire 
front  of  a  room  or  atelier  consists  of  windows,  the  num- 
ber of  windows  to  be  taxed  is  determined  by  their  solid 
divisions  of  either  iron,  wood,  or  stone.  Exempt  are  the 
doors .  and  windows  to  light  or  air  of  barns,  sheepf olds, 
stables,  cellars,  etc.,  not  intended  for  human  dwelling. 
Further  exempt  are  doors  or  gates  not  locked ;  also  interior 
doors  of  communication  from  one  yard  to  another.  Doors 
as  well  as  windows  of  manufacturing  establishments  are 
not  taxable  except  to  those  in  the  dwelling  part. 

Again,  what  is  called  a  mohiliary  tax  of  France  is  gov- 
erned by  the  amount  of  rent  paid  or  the  rentable  value  of 
the  dwelling  of  the  taxpayer.  That  portion  of  a  house 
used  exclusively  for  trade  or  a  similar  purpose  and  not 
for  a  residence  is  not  counted  in  the  valuation  of  the  rent- 
able value  like  a  furnished  house  or  a  private  chapel;  but 
premises    or    dependencies    of    dwelling    houses,    courts. 


520    THE   THEORY  AND  PRACTICE  OF  TAXATION. 

stables,  and  carriage  houses  of  luxury,  clubs,  societies,  and 
Masonic  lodges  are  counted  in. 

In  assessing  the  mobiliary  tax  it  is  not  necessary  that 
the  figures  taken  as  a  basis  for  taxation  should  be  the  real 
rent;  it  is  sufficient  that  the  proportion  of  the  assumed 
rent,  the  basis  of  the  tax,  and  the  real  rentable  value  of 
the  dwelling  should  be  exactly  the  same  for  all  taxpayers ; 
so  that  a  taxed  citizen  can  convince  himself  whether  he 
is  overtaxed  or  not  by  comparing  his  own  rent  with  that 
generally  charged  in  his  community. 

The  theory  which  underlies  the  French  system  of  taxa- 
tion is  that  the  rent  or  rental  value  of  the  premises  occu- 
pied by  the  taxpayer  as  a  residence  is  proportioned  to  the 
amount  of  his  property;  and  this,  generally  speaking, 
would  seem  to  be  a  not  unreasonable  assumption.  At  all 
events,  it  would  seem  to  possess  this  great  advantage — 
namely,  that  the  rent  payable  by  every  citizen  may  be 
readily  ascertained,  while  the  amount  of  his  means  can 
not,  if  he  chooses  to  conceal  it.* 

Note. — M.  Yves  Guyot,  in  a  report  recently  made  on  ques- 
tions connected  with  proposals  relating  to  the  establishment  of  an 
income  tax  in  France,  regards  the  great  fiscal  wrong  in  that 
country  to  be  the  inequality  of  the  assessments  of  real  property 
in  the  different  departments.  This  is  increased  by  the  fact  that 
the  French  land  tax  is  not  levied  at  the  same  rate  on  all  prop- 
erty, but  the  proportion  of  the  whole  amount  which  is  to  be  paid 
by  each  department  is  fixed  by  the  central  authority;  the  depart- 
ments allot  the  quotas  to  be  paid  by  the  several  communes,  and 
the  communal  authorities  apportion  their  quota  among  the  indi- 
vidual taxpayers.  The  tax  is,  to  use  the  French  technical  term, 
one  of  repartitloyi  and  not  of  quotite.  If  it  were  the  latter,  each 
taxpayer  would  pay  in  proportion  to  his  property;  the  rate  of  the 

*  The  following  epitome  which  has  been  recently  made  of  the 
burden  of  taxation  imposed  upon  an  honest  taxpayer  in  New  York 
as  compared  with  that  which  is  borne  by  a  man  possessed  of  the 
same  means  or  income  in  the  city  of  Paris  is  believed  to  be  approxi- 
mately correct: 

"  Let  us  assume  that  the  property  of  such  an  individual,  if  out 
of  business,  consists  of  personal  estate,  such  as  railway  bonds  and 
stocks  of  the  value  of  $100,000,  that  the  net  annual  income  there- 
from is  $5,000,  and  that  the  rent  paid  by  such  individual  amounts 
to  one  fifth  of  his  income,  equal  to  $1,000,  or  that  being  engaged 
in  business  his  average  annual  profits  enable  him  to  occupy  an 
apartment  of  the  same  rental  value.  In  Paris  the  party  in  ques- 
tion  would   have   to   pay   as   contributions   mobllidres   about   400 


TAXATION  OF  CAPITAL.  521 

tax  would  be  fixed  by  the  Government  instead  of  the  amount  to 
be  raised  from  each  department.  The  valuation  on  which  this  tax 
is  levied  is  the  net  annual  value,  and  was  fixed  unsystematically 
and  imperfectly  from  fifty  to  seventy  years  ago;  the  value  of  real 
property  has  changed,  but  the  original  assessment  is  still  in  force. 
The  result  is  that  some  departments  pay  from  six  to  eiglit  times 
as  much  as  others  in  proportion  to  their  real  annual  value. 

]\I.  Guyot  advocates  a  tax  on  the  capital  in  place  of  on  the 
annual  value.  There  is,  as  he  points  out,  a  manifest  injustice  in 
taxing  the  same  amount  of  capital  at  different  rates,  according 
to  the  mode  in  which  it  is  invested.  In  France  a  capitalist  might 
invest  his  money  in  building  lots  or  other  land  temporarily  un- 
productive, but  held  for  resale  at  a  profit.  The  investment,  yield- 
ing no  income,  would  practically  escape  taxation.  If  the  same 
sum  were  invested  in  safe  securities  yielding  an  income  of  three 
per  cent,  the  tax  would  be  levied  on  that  income,  while  if  placed 
in  business  where,  though  it  might  temporarily  yield  twelve  per 

francs,  or,  say,  $80,  or,  including  his  door  and  window  tax,  which 
he  pays  through  his  landlord,  say,  $90.  If  engaged  in  business  or 
practising  a  profession,  he  would  have  to  pay  a  license  tax  or 
patente,  which  varies  from  100  to  1,000  francs  (we  are  speaking, 
of  course,  of  the  mass  of  the  people,  and  not  of  merchants  or 
companies  occupying  very  extensive  and  costly  premises,  whose 
patente  may  run  up  to  several  thousand  francs,  and  whose  taxes 
are  payable  out  of  the  profits  of  their  business,  and  not  out  of  the 
income  derived  from  their  investments).  Such  householder  thus 
pays  on  an  average,  say,  1,000  francs  as  the  total  of  his  direct 
taxes.  Supposing  him  to  pay  the  sum  of  1,000  francs  indirectly  in 
the  shape  of  octroi  duties  on  the  provisions  consumed  by  himself 
and  family  in  the  course  of  the  year  (and  this  allowance  we  con- 
sider a  very  liberal  one),  we  find  the  total  amount  of  his  annual 
taxes,  direct  and  indirect,  to  be,  say,  2,000  francs,  or  $400;  while  in 
New  York  a  person  similarly  situated  would  have  to  pay,  if  he 
made  an  honest  and  full  declaration  of  his  property,  about  2.6  per 
cent  on  his  principal,  making,  in  the  present  case,  his  tax  amount 
to  $2,600.  Even  if  we  assume  that  the  Parisian  pays  an  additional 
$200  per  year  on  an  average  in  the  way  of  succession  and  other 
exceptional  taxes,  his  contributions  to  the  expenses  of  the  Gov- 
ernment would  be  at  the  utmost  only  $600  in  place  of  the  $2,600 
levied  upon  the  unfortunate  New-Yorker. 

"  In  return  for  what  he  pays,  the  Parisian  enjoys  well-paved 
and  well-cleaned  streets,  wide  and  unobstructed  sidewalks,  shade 
trees  with  benches  under  them  for  the  weary,  public  gardens  kept 
in  beautiful  order,  etc.,  while  the  New-Yorker  gets — Avell,  the  less 
said  on  this  subject  the  better.  May  we  not  entertain  the  hope 
that  honest  men  of  all  parties  will  soon  unite  to  secure  a  better 
system  of  taxation  and  a  more  efficient  administration  of  the  gov- 
ernment in  the  most  populous  and  wealthy  city  of  the  model 
republic?  or  must  we  accept  as  a  melancholy  truth  that  universal 
suffrage  inevitably  results  (at  least  in  American  cities)  in  rabid 
democracy,  dishonesty,  and  dirt?" 
34 


522    THE  THEORY  AND   PRACTICE   OF  TAXATION. 

cent,  the  loss  of  the  whole  would  be  risked,  the  owner  would  pay 
four  times  as  heavy  a  tax  as  in  the  previous  case. 

The  same  objections  have  been  frequently  urged  against  the 
income  tax  in  England,  but  there  a  difHculty  exists  in  the  way 
of  assessing  the  capital  value  of  land — viz.,  that  land  is  generally 
the  subject  of  letting  and  seldom  of  sale.  In  France,  however, 
not  only  are  there  nearly  a  million  sales  of  land  each  year,  but  on 
every  devolution  by  inheritance  the  capital  value  of  the  land  is 
oHicially   registered.     The   ascertainment   of   the   capital   value   of 

_  the  entire  country  would  be  an  easy  matter,  and  such  an  assess- 
ment would  be  of  more  durable  benefit  than  an  official  estimate 
of  the  annual  value,  which,  necessarily  varying  from  year  to  year, 
.  would  be  a  much  more  fluctuating  and  uncertain  basis  for  taxation 
than  the  selling  value. 

The  reforms  proposed  by  M.  Guyot  would  increase  the  land  tax 
in  those  departments  which  are  undervalued ;  and  he  estimates  that 

,J  a  revaluation  for  taxation  would  cost  ten  million  dollars,  and  that 
it  would  take  tjen_^ars  to  complete.  He  thinks  the  complaint  by 
landowners  of  overtaxation  generally  is  unfounded ;  but  he  would 
nevertheless  relieve  them  in  the  interest  of  free-trade  principles 
from  the  vexatious  and  heavy  duties  on  transfers,  which,  with 
legal  expenses,  make  the  cost  of  sales  amount  to  ten  per  cent  of 
the  price  paid.  This  heavy  impost  prevents  sales,  and  its  removal 
should  be  supplemented  by  establishing  a  simple  system  of  trans- 
fer on  the  record-of-title  principle.  These  reforms,  which  involve 
equality  of  taxation  and  free  trade  in  land,  are,  in  M.  Guyot's 
opinion,  essential  to  the  well-being  of  France,  whose  greatest 
wealth  consists  in  her  land.  Fifty  per  cent  of  the  population  are 
engaged  in  agriculture,  and,  without  releasing  them  from  their 
fair  share  of  the  public  burdens,  they  should  be  placed  in  such 
circumstances  as  will  permit  land  to  pass  into  the  possession  of 
those  who  are  most  capable  of  working  it  to  advantage.  (Rapport 
siir  les  questions  relritires  a  Vimpot  sur  le  revenu.  Par  Yves  Guyot. 
Paris:   Guillaumin  &  Cie.     1887.) 

Russia  seems  to  have  abandoned  the  idea  of  an  income 
tax,  and  in  place  of  it  would  appear  to  have  substituted 
what  is  known  as  a  "  hearth  "  tax,  which  is  collected  from 
each  separate  building  inhabited,  or  used  for  any  com- 
mercial or  industrial  purpose. 

An  income  tax  has  existed  in  Austria-Hungary  since 
the  beginning  of  the  nineteenth  century.  It  was  repealed 
in  1829,  and  re-enacted  in  1849.  This  tax  is  divided  into 
three  classes.  "  Under  the  first  class,  the  tax  in  force  in 
1887  was  from  eight  and  a  half  per  cent  to  ten  per  cent 
of  net  income."  Under  this  class  the  following  income 
was  taxed:  income  derived  from  all  those  trades  and  oc- 
cupations which  are  subject  to  a  license  tax;  the  income 
of  mining  and  smelting  establishments,  and  the  profit 


EUROPEAN  INCOME  TAXES,         523 

made  by  the  tenants  of  agricultural  lands.  In  the  second 
class,  which  includes  income  from  services  rendered  or 
labour  performed  in  occupations  not  subject  to  a  license 
tax,  the  rate  reported  is  exceptionally  high.  Under  the 
thii-d  class,  which  embraces  interests  from  loans,  from  in- 
vested capital,  savings  banks,  and  life-insurance  com- 
panies, the  rate  is  reported  to  be  ten  per  cent.  The  ex- 
emptions under  this  latter  head  are  very  extensive,  and 
include  the  pay  of  officers  and  soldiers  in  active  service, 
interest  on  deposits  in  savings  banks,  and  a  great  number 
of  public  securities — as  five  per  cent  Austrian  stocks  and 
bonds,  certain  bonds  of  the  Tyrol,  bonds  of  all  railroads 
subject  to  taxation,  lottery  loans  of  1859  and  18G0,  and  a 
large  number  of  other  corporation  securities. 

Servants  are  only  taxed  under  the  second  class  and 
in  case  their  total  income  exceeds  six  hundred  and  thirty 
florins  ($226.16). 

In  case  a  party  subjected  to  an  income  tax  makes 
either  a  false  return  or  neglects  to  make  any,  thrice  the 
amount  of  the  tax  is  imposed,  the  payment  of  which, 
however,  includes  the  tax  itself,  so  that  the  fine  proper 
is  double  the  amount  of  the  tax. 

Denmark. — The  income  tax  of  Denmark  was  recently 
fixed  at  two  per  cent  of  the  taxpayer's  income.  The  tax 
is  collected  by  authorized  agents,  who  are  obliged  to  give 
ample  security  for  the  faithful  performance  of  their  duties, 
for  which  the}^  receive  a  remuneration  of  two  per  cent 
on  the  amount  collected,  together  with  an  allowance  for 
house  rent  in  return  for  the  obligations  imposed  upon 
them  of  having  residences  and  offices  in  the  taxing  dis- 
tricts. This  income  tax  does  not  seem  to  be  objectionable 
in  the  sense  of  undue  burdensomeness,  the  only  complaints 
made  being  in  regard  to  the  publicity  of  the  pecuniary 
conditions  of  the  individuals  taxed. 

Switzerland. — A  resort  to  an  income  tax  for  the  pur- 
pose of  defraying  state  expenditures  seems  to  find  especial 
favour  in  Switzerland,  though  it  does  not  seem  probable 
that  the  systems  adopted  for  its  enforcement  will  ever 
be  found  satisfactory  to  the  people  of  other  countries. 
Thus,  in  the  taxation  of  incomes,  the  average  rate  does 
not  generally  exceed  four  or  five  per  cent,  but  in  some  can- 
tons the  rates  rule  as  high  as  seven  and  even  ten  per  cent. 


524    THE  THEORY  AND   PRACTICE   OP  TAXATION. 

By  a  comparatively  recent  law  established  in  the  canton 
of  Valid,  which  in  point  of  population  and  wealth  ranks 
third  in  the  Swiss  confederation,  progressive  taxation  has 
been  established,  and  the  property  of  the  canton  is  divided 
into  three  classes  which  are  taxed  in  the  following  propor- 
tions :  One  per  cent  1,000  for  estates  under  $5,000  capital 
value;  1|  per  cent  1,000  between  $5,000  and  $30,000,  and 
2  per  cent  1,000  for  estates  exceeding  $20,000  in  value. 
Personal  property  is  divided  into  seven  classes,  the  lowest 
class  being  under  $5,000,  the  highest  exceeding  $160,000 
capital  value.  The  rates  of  taxation  on  these  classes  are  to 
be  in  the  proportion  of  1,  1^,  2,  2^,  3,  3^,  and  4  per  cent 
1,000.  Incomes  from  earnings  are  also  divided  into  seven 
classes,  but  in  arriving  at  the  net  amount  to  be  taxed,  a 
deduction  of  $80  is  allowed  for  each  person  legally  de- 
pendent on  the  head  of  the  family  for  his  support.  The 
result  of  this  is  that  while  a  bachelor  earning  $1,000  a 
year  would  pay  a  tax  of  $15,  a  married  man  with  the  same 
income  and  ten  children  would  pay  but  fifty  cents,  and  if 
he  had  twelve  children  nothing.  The  Vaudois  law  was 
carried  by  overwhelming  majorities  when  submitted,  as 
was  necessary,  to  a  "  referendum  "  vote  of  the  whole  people, 
and  at  every  subsequent  stage  of  its  progress. 

The  only  one  of  the  great  governments  of  the  world 
at  the  present  time  which  can  prefer  a  claim  to  a  large 
measure  of  success  in  administering  an  income  tax  is  that 
of  Germany,  and  especially  that  of  the  kingdom  of  Prus- 
sia ;  and  the  methods  by  which  such  success  has  been  at- 
tained, and  which  seem  to  be  based  on  the  precedents  estab- 
lished by  the  old  Romans  so  far  as  the  changed  conditions 
of  civilization  will  permit,  ought  to  be  most  instructive 
to  those  who  think  this  tax  can  be  administered  and  made 
notably  productive  of  revenue  in  the  United  States.  The 
tax  in  Germany  is  levied,  as  it  were,  in  duplicate,  or  under 
two  forms :  first,  by  towns  and  cities,  and  termed  "  com- 
munal " ;  and,  second,  by  the  state,  under  the  designation 
of  "  class "  tax.  An  entire  exemption  from  these  taxes 
is  granted  only  to  the  very  poorest  and  humblest  of  the 
population. 

"  Petty  hucksters  with  a  small  stock  of  potatoes,  sec- 
ond-hand clothes  pedlers,  servant  girls  earning  four  dol- 
lars and  twenty-five  cents  a  quarter,  pay  the  communal 


PRUSSIA  AND   GREAT   BRITAIN.  525 

tax,  and  are  also  inscribed  in  the  first  (or  lowest)  grade 
of  the  class  tax."  * 

Every  foreigner  staying  in  Prussia  more  than  one  year, 
but  with  no  intent  of  becoming  a  permanent  resident,  must 
expect  to  be  taxed  on  his  income  at  the  expiration  of  the 
first  year,  although  none  of  the  sources  of  such  income 
may  be  within  the  territorial  jurisdiction  of  Prussia.  Up 
to  the  year  1891-93  the  income  tax  of  Prussia  was  levied 
by  a  board  of  income-tax  commissioners,  one  third  of 
whom  were  appointed  by  the  authorities  and  two  thirds 
by  the  taxpayers.  The  assessing  was  done  by  the  board 
on  information  and  evidence  obtainable;  and  in  the  ab- 
sence of  authentic  proof  as  to  the  amount  of  annual  in- 
come, "  circumstantial  and  hypothetical  evidence  was  ac- 
cepted." Parties  thus  assessed  might  appeal  from  the 
conclusions  of  the  board  to  another  tribunal  organized 
for  that  purpose,  whose  decision  was  final.  Appeals  are 
not  often  made  to  this  latter  board,  as  the  methods 
adopted  by  it  to  bring  unwilling  or  evasive  taxpayers  to 
terms  are  harsh  and  inquisitorial  in  the  extreme  and  most 
peremptory.  The  mode  of  proceeding  against  delinquent 
taxpayers  is  very  summary.  If  after  three  days'  written 
notice  payment  fails  to  be  made,  a  mandate  is  issued  by 
the  tax  collector,  and  the  property  of  the  delinquent,  espe- 
cially his  household  goods,  is  seized  and  sold.  By  another 
curious  provision  in  the  German  tax  law  the  collector 
of  taxes  is  made  personally  liable  for  any  taxes  lost  by 
reason  of  his  failing  to  mercilessly  enforce  the  collection 
within  a  prescribed  period.  In  1891  some  mitigation  of 
the  harsh  proceedings  involved  in  the  assessment  of  the 
income  tax  in  Prussia  was  made  by  the  Government,  and 
now  every  taxpayer  is  allowed  to  make  a  return. 

Great  Britain. — The  idea  of  a  general  income  tax 
as  a  means  of  raising  j'e venue  was  first  embodied  in  the 
form  of  a  statute  in  Great  Britain  under  the  administra- 
tion of  Mr.  Pitt,  in  1798,  and  was  proposed  and  advocated 
solely  as  a  means  for  obtaining  additional  revenue  for  the 
prosecution  of  the  war  with  France.  It  imposed  a  tax 
of  ten  per  cent  on  all  incomes  in  excess  of  £200  ($1,000). 
After  the  Peace  of  Amiens,  in  1802,  it  was  repealed  on  the 

*  United  States  Consular  Reports,  Nos.  99,  100,  p.  461. 


526    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

ground  that  a  tax  of  this  character  ought  to  be  exclusively 
reserved  for  the  exigencies  of  war;  and  for  a  like  reason 
it  was  reimposed  on  a  revival  of  the  war  during  the  fol- 
lowing year.  Subject  to  various  modifications,  it  formed 
an  important  constituent  of  the  fiscal  system  of  Great 
Britain  until  after  the  battle  of  Waterloo  and  the  peace  of 
1815,  when  it  was  again  repealed.  After  this,  nothing 
more  was  heard  about  it  until  1842,  when  Sir  Kobert  Peel 
reimposed  it  as  a  merely  temporary  measure — i.  e.,  for  a 
J  period  of  five  years.  It  has,  however,  since  remained  a 
permanent  feature  of  the  British  fiscal  system,  although 
its  repeal  has  been  promised  and  anticipated  by  various 
administrations,  and  in  the  general  election  of  187-1  Mr. 
Gladstone,  in  an  address  to  the  country,  especially  asked 
that  the  confidence  and  continued  administration  of  the 
Government  be  given  him  on  the  ground  that  he  contem- 
plated an  early  repeal  of  the  income  tax.  Circumstances, 
however,  have  prevented  any  such  action,  and  in  subse- 
quent years  of  office  Mr.  Gladstone  has  not  hesitated  to 
raise  the  tax  whenever  the  necessity  of  additional  reve- 
nue for  the  Government  became  imperative.  That  he  has 
regretted  his  inability  to  abolish  it  is  evident  from  his 
saying,  in  his  financial  statement  in  1853 :  "  I  think  some 
happier  Chancellor  of  the  Exchequer  may  achieve  this  great 
accomplishment,  and  that  some  future  poet  may  be  able 
to  sing  of  him : 

"  He  took  the  tax  mcay, 
And  hmlt  himself  an  everlasting  name." 

From  the  outset  the  income  tax  has  been  more  odious  and 
unpopular  in  Great  Britain  than  any  other  form  of  taxa- 
tion. Among  statesmen  and  economists  there  is  hardly 
any  dissent  from  the  opinion  that  the  tax  is  bad  in  prin- 
ciple, because  unequal  and  unjust  in  its  assessment,  and 
incapable  of  being  made  equal  and  just;  and  this,  too, 
although  the  administration  of  the  revenue  laws  of  Great 
Britain — owing  to  the  comparatively  small  area  of  terri- 
tory subjected  to  supervision,  and  the  fact  that  the  tenure 
of  office  on  the  part  of  officials  is  dependent  solely  on 
honesty  and  intelligence — is  wonderfully  efficient,  far  more 
so  than  can  be  expected  under  existing  conditions  in  the 
United  States.     The  annual  reports  of  the  British  Com- 


ENGLISH  INCOME  TAXATION.  527 

missioners  of  the  Inland  Revenue  always  mention  exten- 
sive evasions  of  the  income  tax.  For  the  year  1864-'65 
the  amount  of  such  evasion  was  estimated  to  have  been 
equal  to  about  one  sixth  of  the  revenue  collected  under 
it.  The  demoralizing  effects  which  are  inevitably  produced 
by  the  habit  of  making  false  returns  respecting  income  are 
regarded  by  many  British  authorities  as  far  more  deplor- 
able than  those  resulting  from  any  inequality  contingent 
on  this  form  of  taxation;  as  the  transition  from  a  fraud 
upon  the  Government  to  a  fraud  upon  the  public  is  com- 
parativelv  easy.  The  reported  product  of  the  income  tax 
of  Great'Britain  for  1893-94  was  £15,200,000  ($76,000,- 
000)  ;  an  amount  beyond  the  estimate.* 

*  The  following  incident,  which  has  become  a  part  of  English 
political  history,  is  curiously  illustrative  of  the  state  of  public 
opinion  in  England  at  the  time  of  the  first  imposition  of  the  in- 
come tax  under  the  statute  of  Mr.  Pitt,  and  is  derived  from  the 
memoirs  of  John  Home  Tooke: 

Mr.  Tooke  was  an  Englishman  who  participated  actively  in  Brit- 
ish politics  during  the  last  third  of  the  last  century.  He  early 
espoused  the  side  of  the  Americans  in  their  struggle  for  liberty, 
and  was  persecuted,  fined,  and  imprisoned  by  the  British  Govern- 
ment for  publishing  an  advertisement  for  a  subscription  for  the 
widows  and  orphans  of  the  Americans  "  murdered  by  the  King's 
troops  at  Lexington  and  Concord."  After  his  release  from  prison 
he  naturally,  and  in  connection  with  John  Wilkes,  made  himself 
politically  disagreeable  to  the  Government,  and  the  Government 
in  turn  made  itself  disagreeable  to  him;  and  accordingly  the  oflTice 
of  the  commissioners  for  carrying  into  execution  the  act  for  taxing 
incomes  addressed  Mr.  Tooke  the  following  letter: 

"  May  3,  1799. 

"Sir:  The  commissioners  having  under  consideration  your  dec- 
laration of  income  have  directed  me  to  acquaint  you  that  they 
have  reason  to  apprehend  your  income  exceeds  sixty  pounds  a 
year.  They  therefore  desire  that  you  will  reconsider  the  said  dec- 
laration and  favour  me  with  your  answer  on  or  before  the  8th  inst. 
"  I  am  your  obedient  servant, 

"  W.  B.  LuTTLEY,  Clerk." 

To  this  Mr.  Tooke  replied  : 

"Sir:  I  have  much  more  reason  than  the  commissioners  can 
have  to  be  dissatisfied  with  the  smallness  of  my  income.  I  have 
never  yet  in  my  life  disavowed  or  had  occasion  to  reconsider  any 
declaration  which  I  have  signed  with  my  name.  But  the  act  of 
Parliament  has  removed  all  the  decencies  which  used  to  prevail 
among  gentlemen,  and  has  given  the  commissioners  (shrouded  un- 
der the  signature  of  their  clerk)    a  right  by  law  to  tell  me  that 


528    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

The  United  States. — The  income-tax  experiences  of 
the  United  States  are  so  little  in  accord  with  those  of  any 
other  people  or  countries  that  their  consideration  with  a 
view  of  obtaining  a  practical  acquaintance  and  compre- 
hension of  the  whole  subject  would  seem  to  be  best  facili- 
tated by  grouping  their  most  important  characteristics 
under  three  heads — namely,  their  origin  and  history  and 
undoubted  influence  on  the  political  and  fiscal  policy  of 
the  nation. 

Under  the  great  financial  necessities  of  the  Federal 
Government  by  reason  of  the  war  the  attention  of  Con- 
gress was  directed  to  an  income  tax  as  a  source  of  revenue 
as  early  as  the  summer  of  1861;  and  in  that  and  the  fol- 
lowing year  laws  establishing  such  a  tax  were  enacted. 
Their  provisions  were,  however,  so  complicated,  and  the 
methods  authorized  by  them  so  inquisitorial,  that  the 
Commissioner  of  Internal  Revenue  reported  in  18G3  that 
they  deprived  the  tax  "  of  all  claims  to  public  favour." 
The  revenue  returns  under  such  circumstances  were  very 
moderate:  $2,741,858  in  1863,  and  $20,294,000  in  1864. 
In  this  latter  year  a  more  comprehensive  and  effective  law 
was  enacted,  which  was  followed  by  better  results,  the 
collections  to  the  credit  of  the  income  tax  rising  from 
$32,050,000  in  1865  to  $72,982,000  in  1866,  and  $66,014,- 
000  in  1867.  But  as  the  necessity  for  very  large  revenues 
on  the  part  of  the  Government  ceased  with  the  termina- 
tion of  the  war,  and  the  spirit  of  patriotism  engendered 
by  the  war  on  the  part  of  the  people  abated,  the  collec- 
tions fell  off  very  rapidly.  Thus,  between  1866  and  1867 
the  total  receipts  on  account  of  the  income  tax,  without 
anv  change  in  the  law,  declined  from  $72,982,156  to  $66,- 
014,000;  and  in  1872,  with  an  exemption  of  $2,000,  only 
72,949  persons  in  the  United  States,  out  of  a  population 
of  over  39,000,000,  admitted  under  oath  that  they  were 
in  receipt  of  any  income  liable  to  taxation  in  excess  of  the 


they  have  reason  to  believe  that  I  am  a  liar.  They  have  also  a 
right  to  demand  from  me  upon  oath  the  particular  circumstances  of 
my  private  situation.  In  obedience  to  the  law,  I  am  ready  to 
attend  upon  this  degrading  occasion  so  novel  to  an  Englishman, 
and  give  them  every  explanation  which  they  may  be  pleased  to 
require.  I  am,  sir,  your  humble  servant, 

"  John  Horxe  Tooke." 


AMERICAN  INCOME   TAX.  529 

exemption.  Those  only  who  were  officially  and  intimately 
connected  at  this  time  with  the  Internal  Revenue  Depart- 
ment of  the  United  States  Treasury  can  form  any  adequate 
idea  of  the  amount  of  perjury  and  fraud  that  character- 
ized and  pervaded  the  country,  during  the  years  1867  to 
1872,  as  the  outcome  of  the  then  existing  system  of  in- 
ternal revenue.  And  American  ingenuity  was  never  more 
strikingly  illustrated — not  even  by  the  exhibits  of  the 
patent  office — than  it  was  at  that  time  in  devising  and  suc- 
cessfully carrying  out  methods  for  evading  the  taxes  on 
incomes  and  distilled  spirits. 

One  curious  feature  of  Federal  experience  with  this 
tax,  the  tolerance  of  which  would  now  be  regarded  as  in- 
compatible with  any  just  and  efficient  administration  of 
it,  was,  that  the  returns  made  under  it  were  thrown  open 
to  the  public;  and  one  commissioner  of  internal  revenue 
instructed  his  officials  to  have  them  published  in  the  pages 
of  local  papers,  "  in  order,"  as  he  said,  "  that  the  amplest 
opportunity  may  be  given  for  the  detection  of  any  fraudu- 
lent returns  that  may  have  been  made."  This  idea  did 
not  find  much  favour  with  the  public,  who,  in  fact,  dur- 
ing the  later  years  of  the  tax,  were  inclined  to  regard  with 
great  equanimity  all  successful  attempts  to  evade  it. 

The  income  tax  ceased  to  form  a  part  of  the  internal 
revenue  system  of  the  United  States  after  the  year  1872. 
It  was,  however,  made  a  part  of  the  tax  system  of  several 
of  the  States,  and  the  following  record  (hitherto  generally 
overlooked  by  the  public)  of  the  recent  administrative 
experience  of  one  State  ought  to  be  especially  worthy  of 
the  attention  of  those  who  advocate  the  readoption  of  this 
form  of  taxation  by  the  Federal  Government. 

No  State  in  the  Union  has  a  more  illiberal,  all-pervad- 
ing system  of  taxation  than  Massachusetts,  and  in  no 
State  is  the  administration  of  tax  laws  more  stringent  y 
or  arbitrary.  What  Massachusetts  fails  to  accomplish 
in  the  assessment  and  collection  of  taxes  would,  therefore, 
seem  to  be  of  little  use  for  any  of  the  other  States  or  the 
Federal  Government  to  attempt  with  any  anticipation  of 
success.  This  Massachusetts  system  finds  its  fittest  ex- 
emplification in  the  city  of  Boston ;  and  the  officials  who 
constitute  its  department  of  municipal  taxation  never  in- 
dulge, as  the  taxpayers  well  know,  in  much  sentiment  in 


530    THE  THEORY  AND   PRACTICE  OF  TAXATION. 

the  discharge  of  their  duties.  The  acknowledged  repre- 
sentative of  this  board  for  many  years  never  hesitated  to 
say  that  he  recognised  but  one  principle,  and  that  was, 
that  in  matters  of  taxation  the  taxpayer  had  no  rights 
which  the  State  was  bound  to  respect;  and,  as  chairman 
of  a  State  commission  which  some  years  ago  made  a  report 
to  the  Legislature,  and  with  the  Declaration  of  Independ- 
ence confronting  him  with  its  assertion  that  it  is  a  self- 
evident  truth  that  "  all  men  are  endowed  by  their  Creator 
with  certain  inalienable  rights,"  he  also  gravely  asserted 
that  "  the  individual  person  [in  Massachusetts]  has  no 
inalienable  rights  except  that  to  his  own  righteousness." 

One  of  the  specialties  of  municipal  taxation  in  Boston, 
under  the  supervision  of  its  Board  of  Assessors,  is  an  in- 
come tax,  and  its  methods  of  administration  are  substan- 
tially as  follows :  Taxpaj^ers  are  required  to  make  a  return 
annually,  and  in  detail,  of  all  their  property  which  the 
law  makes  subject  to  taxation  (and  that  embraces  almost 
everything  in  Massachusetts  except  their  proprietary  in- 
terests in  graveyards)  ;  and  in  blanks  officially  furnished 
for  such  purpose  there  is  a  special  space  for  a  return  of 
every  individual's  income.  If  no  return  is  made,  then 
the  Board  of  Assessors  meet  in  secret  in  an  upper  room 
of  the  City  Hall,  known  as  the  "  Dooming  Chamber,"  and 
arbitrarily  determine  the  amount  of  income  for  which 
each  delinquent  shall  be  assessed ;  and  from  such  determi- 
nation there  is  practically  no  appeal.  The  amount  thus 
assessed  for  income  to  the  individual  is  then  "  lumped  in  " 
with  the  aggregate  of  his  other  taxes ;  and  if  a  dissatisfied 
taxpayer  wishes  to  discover  what  amoimt  has  been  decided 
upon  as  his  income,  the  assessors  will  not  afford  him  any 
information.  Under  such  circumstances  it  might  natural- 
ly be  supposed  that  the  administration  of  an  income  tax  in 
the  city  of  Boston  would  be  an  unqualified  success.  But 
what  are  the  facts  ? 

First,  comparatively  few  of  the  taxpayers  of  Boston 
make  any  returns  to  the  assessors  of  their  income.  Sec- 
ond, the  returns  that  are  made  are  not  open  to  the  in- 
spection of  the  public.  There  is  no  law  in  Massachusetts 
covering  this  point,  but  one  of  the  Boston  assessors  is 
reported  as  saying  that  if  the  returns  were  open  to  public 
inspection  none  would  be  made,  as  the  chief  objection  of 


MASSACHUSETTS  SYSTEM.  531 

taxpayers  to  filing  returns  was  tlie  fear  that  tlicir  incomes 
from  business  or  professions  might  be  known.  The 
statutes  of  Massachusetts,  however,  provide  that  the  re- 
turns of  each  individual's  property  shall  be  made  by  the 
assessors  of  every  city  and  town  in  the  State  to  the  secre- 
tary of  the  Commonwealth;  but  inquiry  shows  that  the 
Boston  assessors  make  no  such  returns.  Third,  although 
the  amount  annually  collected  from  an  income  tax  in  the 
city  of  Boston  is  very  considerable — $840,000  in  1893 — 
it  probably  represents,  according  to  the  Boston  Advertiser, 
"  only  about  one  fourth  of  what  is  due  in  the  city  from 
incomes."  In  the  face  of  such  an  exhibit  the  question 
is  pertinent,  What  measure  of  success  do  the  present 
advocates  of  a  Federal  income  tax  expect  will  follow  an 
attempt  to  expand  the  Boston  system  of  its  administra- 
tion over  an  area  of  country  extending  from  Florida  to 
Alaska? 

One  would  naturally  think  that  the  lesson  of  experience 
which  the  Government  and  the  people  of  the  United  States 
have  already  had,  would  restrain  further  experimenting 
with  this  subject  until  the  next  war  or  the  arrival  of  the 
millennium. 

That  a  free  government  can  not  efficiently  collect  a  tax 
which  its  people  regard  as  unjust  without  a  resort  to  des- 
potic methods  that  public  sentiment  in  turn  will  not 
tolerate  is  illustrated  in  this  further  tax  experience  of 
Massachusetts : 

The  State  laws  require  that  citizens  who  are  share-  Z 
holders  in  corporations  organized  in  other  States  shall  be  % 
taxed  in  Massachusetts  on  the  market  value  of  shares  so 
held ;  and  such  owners  are  required  to  make  a  return  under 
oath  of  the  amount  of  such  property  in  their  possession.* 
Yet  a  petition  recently  presented  to  the  Legislature  of  the 
State  by  representative  members  of  boards  of  trade  and 
chambers  of  commerce  recites  that  the  law  in  question 
"  is  ineffective  and  therefore  ridiculous,  as  is  proved  by 
the  fact  that  although  the  market  value  of  shares  of  for- 
eign corporations  held  bv  citizens  of  Bosto"n  alone  is  be- 
lieved to  be  over  $600,000,000,  the  amount  taxed  by  the 

*  The  tax  laws  of  New  Hampshire  and  Vermont  are  drafted 
especially  with  a  view  to  compelling  the  disclosure  of  income. 


532    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

assessors  of  Boston  was  then  only  estimated  at  $45,000,- 
000;  and  nearl}'  all  of  this  that  is  known  is  taxed  to  the 
unfortunate  people  whose  estates  are  in  trust."  * 

In  the  United  States  the  income  tax,  as  enacted  in 
1863,  exempted  $600  annual  income  for  each  person,  to- 
gether with  whatever  was  paid  annually  for  rent  and  re- 
pairs of  residence.  Five  per  cent  per  annum  was  then 
levied  on  all  incomes  above  $600  and  not  in  excess  of 
$5,000;  seven  per  cent  on  all  incomes  in  excess  of  $10,000. 
In  the  income  tax  of  the  United  States  as  it  existed  at  one 
period  there  was,  therefore,  recognised  the  principle  not 
only  of  exempting  incomes  below  a  certain  amount  from 
all  taxation,  which  amount,  in  order  to  keep  up  the  appear- 
ances of  equity,  was  allowed  to  be  equally  deducted  from 
all  larger  incomes ;  and  in  addition  a  further  feature,  not 
generally  recognised  in  other  existing  systems  of  income 
taxations,  of  "  graduating  "  the  assessment  by  increasing 
the  rate  or  the  percentage  on  the  larger  incomes ;  a  system 
most  exceptional  and  peculiar,  but  which  on  first  presenta- 
tion seemed  to  find  favour  as  an  ingenious  and  equitable 

*  If  any  one  thinks  that  this  extraordinary  tax  experience  is 
limited  to  one  section  of  the  country,  he  would  do  well  to  acquaint 
himself  with  the  recent  results  of  the  State  of  Ohio  in  attempting 
to  tax  money  on  deposit.  Ohio  has  even  a  more  efficient  and 
minute  scheme  of  taxing  all  classes  of  property  than  Massachusetts. 
Not  only  is  every  citizen  bound  under  oath  to  make  a  complete 
return  of  his  property,  but  the  law,  in  addition,  empowers  each 
county  in  the  State  to  contract  with  certain  so-called  "  tax  in- 
quisitors "  for  the  payment  of  twenty  per  cent  of  all  taxes  collected 
through  their  agency  on  previously  assessed  property.  How  suc- 
cessful this  scheme  has  been  in  collecting  taxes  on  money  on  de- 
posit is  shown  by  the  fact,  revealed  in  a  recent  report  of  the  State 
Board  of  Tax  Commissioners,  that  while  the  amount  of  money 
on  deposit  in  the  State,  national,  and  private  banks  of  Ohio  in 
1892,  and  subject  to  State  taxation,  Avas  at  least  $190,000,000,  the 
amount  actually  returned  for  ta.xation  in  the  whole  State  during 
that  same  year  was  but  a  little  over  $32,000,000.  There  is  a  re- 
mark that  has  almost  assumed  the  character  of  a  proverb,  that  a 
text  suitable  to  and  illustrative  of  every  situation  may  be  found 
in  the  Bible.  The  text  that  is  most  applicable,  and  which  ought  to 
be  full  of  instruction  to  every  congressional  advocate  of  the  en- 
actment of  an  income  tax  by  the  Federal  Government  in  time  of 
peace,  will  be  found  in  the  sixth  chapter  of  the  First  Epistle  of 
Paul  to  the  Corinthians,  where  the  apostle,  as  if  he  had  the  ex- 
isting situation  in  view,  remarks.!"  All  things  are  lawful  unto  rngj 
but  all  things  are  not  expedient."  ' 


DISCRIMINATING  INCOME  TAX.  533 

method  of  equalizing  the  burdens  of  the  State  between  the 
rich  and  the  poor. 

The  present  is  therefore  an  advantageous  opportunity 
for  asking  whether  any  income  tax  which  discriminates  in 
any  degree  is  likely,  as  is  often  claimed,  to  constitute  the 
one  perfect  form  of  taxation  of  the  future.  And  at  the 
outset  attention  is  asked  to  the  following  considerations, 
to  which  popular  attention  is  not  always  intelligently 
given : 

A  Federal  income-tax  system  necessarily  involves  mul- 
tiple taxation  on  one  and  the  same  income,  person,  and 
property.  For  example,  in  the  United  States  a  citizen  of 
any  one  State  would  be  liable,  in  the  first  instance,  to  the 
Federal  tax  on  his  income;  second,  to  a  State  tax  on  the 
same  income;  third,  to  a  tax  on  the  property  or  business 
producing  the  income,  in  virtue  of  its  location  and  con- 
sequent territorial  Jurisdiction  of  the  State.  In  some  ^ 
States — Massachusetts,  for  example — the  State,  in  virtue  ./7v 
of  its  jurisdiction  over  a  person,  taxes  him  also  for  prop-\  '^j  a^ 
erty  beyond  its  territorial  jurisdiction  and  subject  to  taxa-  yQ^  ^ 
tion  in  the  State  where  it  is  an  actuality.  Doubtless  such  i 
duplications  in  a  greater  or  less  degree  will  be  inevitable 
in  the  case  of  all  Federal  taxation.  But  where  there  are 
so  many  sources  available  to  the  national  Government 
for  obtaining  revenue,  it  would  seem  to  be  impolitic  for  it 
to  encroach  on  those  methods  which  are  particularly  ap- 
plicable to  the  States — as  income  taxes,  taxes  on  legacies 
and  successions,*  which  are  governed  and  protected  by 
State  laws,  and  franchises,  which  are  almost  exclusively 
granted  by  the  States  and  rarely  by  the  Federal  Govern- 
ment. Certainly  there  would  seem  to  be  no  warrant  in 
either  justice  or  expediency  in  unnecessarily  favouring 
such  a  system  of  multiple  taxation ;  thereby  increasing  the 
real  or  fancied  grievances  of  the  people  in  respect  to  all 
taxation,  and  creating,  by  reason  of  a  sense  of  injustice, 
additional  temptations  on  the  part  of  the  taxpayer  to 
fraud  and  evasion. 

Again,  all  modern  systems  of  income  taxation  have 
recognised  the  principle  of  discriminating  in  favour  of 
persons  in  receipt  of  comparatively  small  incomes,  and 

*  See  post,  Chapter  XXVIII. 


534    THE   TPIEORY  AND   PRACTICE  OF   TAXATION. 

have  provided  as  a  fundamental  feature  of  their  policy, 
that  all  incomes  below  a  certain  rate  should  be  exempted 
from  assessment.  Such  exemptions,  except  in  the  case  of 
the  United  States,  have  always  and  until  within  a  recent 
period  been  of  a  comparatively  small  amount.  In  Great 
Britain  it  is  £160  ($800)  per  annum.  No  difference  is 
made  in  England  in  levying  the  income  tax,  though  often 
proposed  and  advocated,  on  account  of  the  source  whence 
the  income  is  derived.  Whether  the  income  is  earned  by 
the  exertions  of  its  possessor,  or  arises  from  property, 
so  that  the  recipient  is  sure  of  it  without  the  slightest 
exertion  at  all  on  his  part,  the  same  proportion  has  always 
been  deducted  from  it.  In  the  administration  of  its  in- 
come-tax system  England  has  abandoned  the  idea  of  as- 
sessing an  income  derived  from  multiple  sources  as  a 
whole  to  one  taxpayer,  and  in  place  divides  an  assessable 
income  into  schedules  according  to  its  source ;  and,  in  fact, 
has  given  to  such  a  system  the  popular  designation  of 
"  the  stoppage  at  source  plan."  Thus  at  present  the 
sources  of  income  in  Great  Britain  are  classified  as  per- 
taining to  one  or  more  of  five  schedules — designated  as 
A,  B,  C,  D,  and  E.  For  example,  the  profits  or  income 
derived  from  agricultural  industry  are  classified  as  under 
schedule  A,  and  those  from  manufactures,  mines,  gas 
works,  and  water  supplies  under  schedule  D,  and  the  like; 
and  it  is  only  in  schedules  A  and  D  that  the  income  re- 
ceiver must  make  a  return  of  agricultural,  mercantile,  or 
manufacturing  gains  or  profits.* 

The  result  of  a  progressive  income  tax  instituted  a 
few  years  since  in  Vaud  and  other  prosperous  and  popu- 
lous  Swiss  cantons  is  reported  to  have  already  verified 

*  A  recent  number  of  the  London  Times  reports  the  following 
additional  illustration  of  the  ingenuity  of  the  people  of  every 
country  subject  to  an  income  tax  to  evade  the  payment  of  the 
same: 

"  There  is  an  argument  in  favour  of  the  separation  of  the  in- 
comes of  married  couples  for  the  purpose  of  income  tax  which  has 
not  yet  been  advanced.  It  is  the  immoral  state  of  the  law  as  it 
stands  at  present.  John  and  Mary,  each  possessing  incomes  of  less 
than  £  500,  but  in  the  aggregate  exceeding  that  sum,  agree  to  live 
together  as  a  certain  '  advanced  '  couple  did  who  made  themselves 
notorious  only  a  short  time  since.  They  are  both  entitled  to  relief 
under  the  act.     Should  they,  however,  legalize  their  union,  neither 


PROGRESSIVE  TAXATION.  585 

the  predictions  and  prophecies  of  the  European  economists. 
The  project  has  been  often  discussed  in  England,  France, 
and  other  countries,  but  the  tendency  of  economic  discus- 
sion has  always  been  generally  adverse  to  it,  on  the  ground 
that  such  forms  of  taxation  would  discourage  the  perma- 
nent investment  of  capital,  and  encourage  capitalists  to 
transfer  their  capital  and  business  to  other  and  foreign 
localities.  Vaud,  however,  in  particular,  determined  to 
ignore  the  economists  and  impose  the  tax,  and  the  inevi- 
table disturbance  of  capital  is  reported  to  have  taken  place. 
One  of  the  chief  capitalists  of  Lausanne,  a  Swiss  tanner 
named  Mercier,  employing  several  hundred  workmen,  is 
moving  his  business  from  Lausanne  to  the  other  side  of 
the  lake  (Geneva)  at  Evian.    Evian  is  in  French  territory, 

is  entitled  to  any  rebate,  and  they  are  actually  taxed  for  rendering 
themselves  respectable  members  of  society.  And  this  is  in  moral 
England." 

In  the  earliest  of  Mr.  Gladstone's  budget  speeches,  that  of  1853, 
he  distinctly  refused,  while  admitting  that  a  great  deal  might  be 
said  in  favour  of  taxing  incomes  at  diflferent  rates,  according  as 
they  proceed  from  property  or  from  skill,  to  break  up  the  income 
tax  into  classes,  and  to  make  a  difference  in  the  assessment  accord- 
ing to  the  source  from  which  the  income  was  derived.  Mr.  Glad- 
stone's argument,  in  this  instance,  applied  to  the  difficulty  of  dis- 
criminating between  the  various  degrees  of  the  durability  of  in- 
comes; but  his  definite  refusal  to  "vary  the  rate  of  the  tax  accord- 
ing to  the  source  of  the  income  "' — on  the  ground,  to  use  his  own 
words,  that  "  I  think  that  I  should  be  guilty  of  a  high  political 
offence  if  I  attempted  it  " — may  suffice  as  a  sufficient  expression  of 
his  opinion  in  favour  of  a  proportional  system.  In  a  recent  number 
of  the  Nineteenth  Century  Mr.  Gladstone  referred  to  his  budget  of 
1853,  in  which  he  continued  his  income  tax.  and  to  his  proposal, 
in  1874,  to  carry  on  the  national  finance  without  its  assistance. 
He  refers  to  the  preparations  made,  through  successive  reductions 
of  the  tax,  for  its  ultimate  abolition,  and  observes  that  "  in  1S74, 
for  the  first  time  since  1845,  the  opportunity  arrived.  The  nation 
had  its  opportunity  and  took  its  choice.  It  may  have  been  wise 
or  unwise;  but  it  was  made  by  competent  authority.  The  result 
is  told  in  our  present  expenditure." 

In  general  discussions  on  the  income  tax,  especially  those  which 
have  characterized  the  financial  debates  in  the  British  Parliament, 
the  proposition  has  been  often  advanced  that  it  is  a  hardship 
that  incomes  arising  from  the  exertions  of  a  man's  brain  should  be 
charged  at  as  high  a  rate  as  those  resulting  from  invested  capital; 
and  during  the  present  Parliament  (1896)  a  motion  was  made  by 
a  leading  member  that  the  financial  committee  of  the  House  may 
have  permission  to  amend  the  assessment  in  such  cases.  In  a  de- 
bate which  followed    (instituted   by   Sir  John   Lubbock)    it   was 


536    THE  THEORY   AND   PRACTICE  OF  TAXATION. 

and  there  is  no  progressive  income  tax  there.  "  Up  to 
this  time,"  wrote  M.  Mercier,  in  a  letter  published  by  the 
Lausanne  papers,  "  I  have  paid  over  20,000  francs  a  year 
in  state  and  town  taxes.  The  new  law  would  raise  that 
figure  to  80,000  francs  or  more.  I  owe  it  to  my  family  to 
withdraw  out  of  reach  of  what  I  can  not  consider  other- 
wise than  downright  spoliation.'' 

A  recent  economist,  commenting  on  this  transaction, 
thus  curtly  developed  the  whole  subject :  "  The  fact  is  that 
a  progressive  income  tax  will  not  work  under  modern  con- 
ditions. The  modern  movability  of  capital  has  made  all 
the  difference.    The  Florentine  democracy  taxed  capital  to 

stated  that  "  while  there  was  an  immense  difference,  no  doubt,  be- 
tween the  two  classes  of  incomes,  if  extreme  cases  were  considered, 
they  nevertheless  passed  the  one  into  the  other  by  imperceptible 
gradations.  Nor  had  any  satisfactory  treatment  of  investments 
ever  been  suggested.  Let  them  take  one  class — the  securities  of 
foreign  nations.  8ome  were  excellent,  others,  unfortunately,  as  in- 
vestors knew  to  their  cost,  were  almost  valueless.  An  arrange- 
ment, however,  proposed  by  Sir  Robert  Peel  in  1858  gave  a  substan- 
tial relief  to  those  who  had  precarious  incomes.  They  made  their 
returns  on  an  average  of  the  income  during  the  three  preceding 
years,  and,  if  the  amount  fell  short,  a  rebate  was  given  on  the 
difference.  He  urged  that  they  might  make  an  effort  this  year  to 
induce  Parliament  and  the  Government  to  revert  to  the  old  system, 
Avhich,  it  was  evident,  woidd  be  only  fair  and  a  great  boon  to  all 
those  whose  income  depended  upon  their  own  exertions,  whether 
in  law,  medicine,  or  commerce."  He  contended  that  the  rising  and 
successful  man  was  assessed  on  less  than  his  income,  while  the 
man  whose  income  was  falling  was  made  to  pay  on  more  than 
his  income.  The  Chancellor  of  the  Exchequer  said  in  reply  that 
"  his  friend  had  urged  the  desirability  of  returning  to  the  system 
that  existed  prior  to  the  passing  of  the  act  of  186.5.  He  seemed  to 
have  overlooked  the  fact  that  the  alteration  effected  by  that  act, 
which  he  now  wished  to  overthrow,  was  introduced  at  the  express 
instance  of  Mr.  Hubbard,  who  was  a  strong  advocate  for  lightening 
the  burden  of  the  income  tax  wherever  practicable.  Taking  the 
average  of  a  man's  income  for  three  years  was  a  plan  specially  de- 
vised to  meet  the  difficulty  in  the  way  of  appeal  that  would  be 
experienced  by  business  and  professional  men.  He  was  quite  will- 
ing to  allow  that  system  to  continue,  as  he  believed  that  it  was, 
on  the  whole,  fair  to  both  parties.  The  proposal  of  his  friend, 
however,  while  adhering  to  the  form  of  making  a  return  u]i(m  the 
average,  did  not  in  fact  carry  out  that  principle  at  all,  for  the 
first  year  was  only  to  be  struck  out  where  the  fourth  year  showed 
a  loss.  Surely,  therefore,  if  the  revenue  was  to  collect  only  on  the 
small  receipts,  the  principle  of  average  ceased  at  once.  For  this 
reason  he  did  not  feel  justified  in  accepting  the  amendment." 


EXEMPTIONS  IN   GERMANY.  537 

death,  no  doubt,  but  in  the  middle  ages  once  a  Florentine 
always  a  Florentine.  Cosmopolitanism  was  not  invented, 
and  a  man  hesitated  long  before  seeking  his  fortune  among 
strangers  when  '  stranger '  and  '  enemy '  were  almost 
equivalent  terms.  All  that  is  now  changed.  A  progressive 
income  tax  in  England,  unless  very  moderate  and  man- 
aged with  the  utmost  circumspection — and  even  then  the 
experiment  would  be  too  dangerous  to  try — would  cer- 
tainly result  in  an  enormous  transference  of  English  capi- 
tal to  Belgium  and  Germany.  If  the  idea  of  progressive 
taxation  is  feasible  at  all,  it  is  only  feasible  in  the  death 
duties,  and  even  there  the  difficulties  are  formidable 
enough."  * 

In  Germany,  the  income  exemption  being  very  small, 
nearly  the  whole  population  of  the  country,  male  and 
female,  are  made  subject  to  the  provisions  of  the  income 
tax.     According  to  M.   Soetbeer,  the  German  economist, 

*  The  rate  of  tax  progression  in  Canton  Vaud  is  much  less  heavy 
in  the  case  of  real  than  in  respect  to  other  descriptions  of  property. 
The  amount  of  taxation  is  fixed  yearly.  It  was  for  the  first  year, 
after  the  law  was  passed,  at  the  rate  of  one  hundred  and  twenty 
per  mille  on  the  lowest  class  of  personal  property,  with  exemptions 
on  movable  property,  tools,  kitchen  utensils,  clothes,  and  house- 
hold furniture.  A  much  more  intricate  arrangement  exists  for 
income  derived  from  personal  exertions.  Sixteen  pounds  a  year 
is  allowed  to  be  deducted  from  the  income,  and  exempted  from  taxa- 
tion, for  the  head  of  the  family  himself,  his  wife,  for  each  of  his 
children  or  descendants  who  are  minors,  and  for  each  person  for 
whose  maintenance  the  head  of  the  family  is  legally  liable.  Thus, 
a  man  with  a  wife  and  twelve  children,  possessing  an  income  of 
five  thousand  six  hundred  francs  (two  hundred  and  twenty-four 
pounds)  a  year,  would  be  entirely  exempt  from  taxation,  as  also 
would  be  a  man  with  a  wife  and  three  children  and  an  income  from 
labour  of  tAvo  thousand  francs  (eighty  pounds)  a  year.  It  can  not 
be  supposed  that  a  low  taxation  of  this  character,  with  all  the 
risks  involved  of  causing  capital  to  emigrate,  and  of  preventing 
strangers,  who,  after  an  interval,  are  also  to  be  subject  to  the 
same  tax,  from  settling  in  the  canton,  or  from  remaining  there,  with 
all  the  diff"erences  of  class-feeling  which  it  evoked,  could  have  be- 
come law  without  calling  forth  some  strong  and  almost  passionate 
expressions.  It  has  to  be  remembered  that  besides  the  taxation 
for  the  administration  of  the  canton  proper,  those  levied  for  the 
expenses,  which  we  include  under  the  head  of  local  government, 
such  as  roads,  watercourses,  education,  free  to  all  classes  in  Switzer- 
land, and  carried  out  with  much  vigour  and  cost,  are  likewise 
levied  according  to  the  same  system.  We  may  form  some  idea  o\ 
the  weight  of  the  burden  thus  imposed. 
35 


538  THE  THEORY  AND  PRACTICE  OF  TAXATION. 

the  total  income  of  the  classes  in  Germany  who  pay  in- 
come taxes  is  $2,190,000,000,  and  of  this  amount  fifty-one 
per  cent  is  owned  by  people  whose  incomes  range  between 
two  hundred  and  twenty-five  dollars  and  four  hundred  and 
twelve  dollars.  And  the  Xew  York  Nation  surmises  that 
a  similar  state  of  things  would  be  found  if  an  analysis  of 
all  classes  of  income-tax  payers  were  to  be  made  in 
England. 

In  Austria  a  new  law  has  been  reported  by  a  special 
Government  commission  since  a  previous  statement  (see 
this  chapter,  page  522).  At  present  all  persons  of  Austrian 
nationality  whose  annual  income  exceeds  six  hundred 
florins  will  be  liable  to  a  personal  income  tax  which  will 
be  levied  on  a  sliding  scale.  The  scale  is  graduated  so 
that  five  per  cent  will  be  levied  on  small  incomes  and  as 
much  as  six  per  cent  on  large  ones.  Employees  whose 
total  incomes  are  less  than  six  hundred  florins  per  annum 
are  exempt.  In  addition  to  the  income  tax,  persons  of 
either  sex  trading  or  carrying  on  business  on  their  own 
account  are  subject  to  an  additional  impost.  The  new 
law  is  intended  to  supersede  the  existing  system  by  the 
introduction  of  a  general  tax  on  private  trading  and  in- 
dustrial establishments  of  all  descriptions,  a  tax  on  all 
joint-stock  companies  and  other  enterprises  legally  bound 
to  publish  annual  balance  sheets,  a  tax  on  incomes  derived 
from  invested  capital,  and  a  personal  income  tax  based  on 
a  progressive  sliding  scale. 

In  France,  the  republic,  although  groaning  under  an 
almost  overwhelming  burden  of  debt,  has  recently  refused, 
by  a  vote  in  its  Chamber  of  Deputies  of  267  to  236,  to 
reconstruct  its  income-tax  system,  with  a  view  of  increas- 
ing the  revenue  derived  from  it;  and  subsequently,  by  a 
majority  of  289,  refused  to  reconsider  its  position,  al- 
though the  organic  law  framed  for  France  in  1875  gives 
the  national  legislature  unlimited  power  over  taxation, 
direct  as  well  as  indirect.  During  the  popular  discussion 
that  preceded  this  legislative  action,  it  is  interesting  to 
note  that  a  progressive  income  tax  was  not  properly  re- 
garded as  more  oppressive  than  many  other  forms  of  taxa- 
tion, and  as  a  matter  of  French  experience  a  heavy  income 
tax — about  four  per  cent — is  now  levied  on  French  bonds 
and  shares,  in  fact,  on  every  dividend  of  a  French  com- 


INCOME  TAX  IN  FRANCE.  539 

pany,  while  no  income  tax  is  levied  on  French  Government 
stocks  or  foreign  bonds ;  and  this  apparently  unfair  treat- 
ment is  accounted  for  because  the  revenue  derived  from 
French  companies  can  be  easily  ascertained  and  the  com- 
panies made  responsible  for  it,  while  such  a  result  would 
be  impossible  in  the  case  of  foreign  bonds  or  foreign  stocks 
and  shares,  and  hence  the  difficulty  has  arisen  of  how  to 
compel  the  taxpayer  to  pay :  as,  if  the  declaration  was  left 
to  him,  it  was  not  unreasonable  to  suppose  he  would  not 
declare  it,  or  only  declare  it  in  part ;  while  if  left  for  ascer- 
tainment by  French  officials,  it  was  feared  that  the  income 
tax  in  France  would  become  a  political  weapon,  which 
would  be  freely  used  against  the  legislators  in  power. 

M.  Paul  Leroy-Beaulieu,  a  distinguished  French  econo- 
mist, has  recently  advanced  and  advocated  the  view  that 
a  state  in  instituting  an  income  tax  for  the  sole  purpose 
of  obtaining  revenue,  ought  not  to  grade  the  tax  at  all, 
or  lay  a  higher  rate  on  large  incomes  than  on  smaller 
ones;  or,  in  other  words,  that  it  is  better  to  tax  all  in- 
comes that  are  taxed  at  all  at  one  uniform  rate;  and  the 
reason  for  this  is  that  the  large  incomes  form  so  small  a 
percentage  of  the  total  that  the  increased  rate  adds  no 
great  amount  to  the  revenue,  while  it  greatly  increases  the 
difficulty  of  assessing  large  incomes  at  their  true  value. 

In  support  of  this  view  he  submits  in  general  terms 
the  following  results  of  his  careful  examinations  in  Prus- 
sia, Saxony,  and  England :  In  Prussia,  where  incomes 
above  one  hundred  dollars  were  taxed,  for  the  year  selected 
by  M.  Leroy-Beaulieu,  about  one  fourth  of  the  people  were 
entirely  exempt.  Of  the  rest,  thirty-five  thirty-sixths  paid 
on  incomes  of  from  one  hundred  dollars  to  seven  hundred 
and  fifty  dollars.  Only  one  person  out  of  forty-three  had 
more  than  seven  hundred  and  fifty  dollars  income.  Only 
a  little  over  four  per  cent  of  the  total  income  of  the  coun- 
try belonged  to  persons  having  an  income  of  from  $4,000 
to  $20,000,  and  only  1.7  per  cent  to  those  having  over 
$20,000  income. 

In  Saxony  one  fifth  of  the  total  incomes  belonsred  to 
persons  having  less  than  one  hundred  and  fifteen  dollars 
yearly.  The  incomes  of  those  having  less  than  four  hun- 
dred and  seventy-five  dollars  each  aggregated  about  two 
thirds  of  the  total  income.    The  great  incomes,  exceeding 


540    THE  THEORY  AND   PRACTICE  OF  TAXATION. 

$25,000  to  the  person,  belonged  to  seventy-three  individ- 
uals, and  comprised  less  than  one  and  a  half  per  cent  of 
the  total. 

In  England  incomes  imder  one  hundred  and  sixty 
pounds,  or  eight  hundred  dollars,  are  not  taxed.  In  the 
year  selected  by  M.  Leroy-Beaulieu  381,000  persons  paid 
income  taxes  of  a  total  of  $750,000,000.  Of  the  contribu- 
tors 342,000,  or  about  nine  tenths,  paid  on  incomes  of  less 
than  $3,000,  but  it  is  noticeable  that  they  were  taxed  on 
not  much  more  than  a  third  of  the  total  amount.  Thus 
nearly  two  thirds  of  the  taxable  income  belonged  to  39,000 
persons.  One  fifth  of  the  total  incomes  assessed  belonged 
to  1,222  persons,  with  an  income  of  over  $50,000  each. 

It  will  be  seen  that  there  is  a  striking  difference  in  the 
results  shown  by  M.  Leroy-Beaulieu's  figures  in  Germany 
and  England.  ^luch  of  this  difference  is  due  to  the  nature 
of  the  laws,  by  which  all  small  incomes  in  England  are 
free  from  taxation,  but  a  part  of  it  is  to  be  attributed 
to  the  larger  fortunes  in  England. 

Italy. — There  is  no  income  tax  in  Italy  in  the  sense  in 
which  that  term  is  used  in  England  and  the  United  States, 
but  there  is  a  so-called  professional  income  tax  which  was 
by  an  old  law  fixed  at  seventeen  per  cent  on  half  the  esti- 
mated income,  and  which  has  been  somewhat  increased  by 
a  new  law  in  which  there  are  variations  made  according 
to  the  sources  of  income.  While  Italy  is,  in  fact,  poten- 
'  •  vtially  one  of  the  richest  countries  in  Europe,  and  in  an- 
\  cient  times  was  so  regarded,  its  name  to  a  certain  extent 
■^' '  has  come  to  be  synonymous  with  poverty.  The  explana- 
y  \,^^^o^  ^^  ^^^^  ^^  ^^^^  ^^^  government  is  prodigal  and  dis- 
.   \/j     \ti    honest;  and  in  gathering  its  income  the  dishonesty  of  its 

>M      X    C\  ofRctals  causes  its  taxation  to  fall  most  oppressively  on  the 
"  \^      li classes   which  a  wise  statesmanship  would   protect,   and 
A^'  .    '^^  leaving  the  minimum  burden  on  those  who  are  most  ca- 
,0^,^       \K     pable  of  bearing  its  maximum. 

>>>/  A  new  feature  of  the  British  fiscal  system,  which  in 

(j-^  a  certain  sense  may  be  regarded  as  an  increase  of  the  ex- 

emption under  the  existing  income  tax,  has  recently  been 
sanctioned  by  Parliament  under  the  name  of  the  "  Farm 
Rating  Act,"  which  proposes  to  mitigate  existing  agricul- 
tural depression  by  relieving  farm  lands  of  a  large  part 
of  their  share  of  local  taxation — i.  e.,  as  pointed  out  in 


EXEMPTION   PROM  TAXATION.  541 

debate  in  flie  House  of  Commons,  by  Sir  William  Har- 
court,  "by  taking  £2,000,000  ($10,000,000)  out  of  the 
general  taxation  of  the  country,"  inasmuch  as,  if  certain 
existing  sources  of  revenue  supply  less,  other  taxes  must 
supply  more.  "  This  will  bring  up  the  total  governmental 
contribution  for  like  purposes  to  £6,000,000  in  1868,  and 
£11,000,000  in  1892."  In  a  debate  on  this  subject  before 
the  Eoyal  Statistical  Society,  it  was  maintained  that  an 
assessment  of  the  English  poor  rate,  to  which  nearly  all 
other  English  rates  were  now  mere  additions,  was  origi- 
nally founded  on  the  principle  of  ability  to  pay,  and  that 
principle  had  never  been  expressly  repudiated.  But  the 
making  of  this  expenditure  a  local  charge  was  in  itself  a 
negation  of  the  principle  of  taxation  according  to  ability, 
and  the  only  question  now  was  whether  an  attempt  should 
be  made  to  establish  in  each  locality  a  principle  which  had 
been  established  as  regards  the  nation  as  a  whole.  The 
answer  was  in  the  negative. 

"  Speaking  very  broadly,"  wrote  Mr.  Goschen  a  quarter 
of  a  century  ago,  "  in  England  fifty  years  ago  land  bore 
two  thirds  of  the  taxation  on  real  property,  and  houses 
and  other  property  one  third;  the  latter  now  bears  two 
thirds,  while  the  lands  bear  one  third.  In  France  lands 
bore  over  two  thirds  more  than  fifty  years  ago,  and  bear 
more  than  two  thirds  still.  Land,  in  short,  is  not  as  a 
rule  highly  rated  in  England,  and  where  it  is  highly  rated 
what  is  wanted  is  a  revised  assessment." 

What  is  Exemption  from  Taxation? — An  exemp- 
tion is  freedom  from  a  burden  or  service  to  which  others 
are  liable ;  but  an  exemption  for  a  public  purpose,  or  a 
valid  consideration,  is  not  an  exemption  except  in  name, 
for  the  valid  and  full  consideration,  or  the  public  purpose 
promoted,  is  received  in  lieu  of  the  tax.  Nor  is  an  ex- 
emption from  taxation  a  discriminating  burden  on  those 
who  pay  an  income  tax,  provided  the  person  or  institu- 
tion benefited  by  the  exemption  is  a  pauper,  or  a  public 
charitable  institution;  for  then  there  is  consideration  for 
the  exemption,  and  it  is  justified  as  a  matter  of  economy, 
and  to  prevent  an  expensive  circuity  of  action  in  levying 
the  tax  with  the  sole  purpose  of  giving  it  back  to  the  in- 
tended beneficiary  of  the  Government.  The  avoidance  of 
this  unnecessary  circuity  of  action  is  not,  moreover,  an  in- 


542    THE  THEORY  AND  PRACTICE  OP  TAXATION. 


V 


^ 


i^ 


jury  but  a  gain  to  those  who  pay  the  tax.  ^t  can  not, 
however,  be  seriously  claimed  that  a  man  having  $100,000 
of  productive  capital,  and  receiving  from  it  $4,000  of 
annual  income,  is  entitled  to  receive  support  from  the 
Government  as  a  public  pauper. 

An  income  tax  which  permits  of  a7iy  exemption  whatever 
is  a  graduated  income  tax,  not  by  the  rate  of  the  tax  but 
by  the  amount  of  the  exemption,  because  all  incomes  below 
an  arbitrary  line  are  entirely  exempt  from  the  tax.  Again, 
in  treating  of  an  income  tax  it  should  be  always  borne 
in  mind  that,  when  a  Government  taxes  the  income  of 
property,  it  in  reality  taxes  the  property  from  which  the 
income  is  derived.  In  England  and  on  the  Continent  of 
Europe  land  is  taxed  on  its  yearly  revenue,  or  income 
value,  and  these  taxes  are  always  considered  as  land  taxes. 
Alexander  Hamilton,  in  discussing  the  taxation  of  incomes 
derived  directly  from  property,  used  this  language :  "  What, 
in  fact,  is  property  but  a  fiction,  without  the  beneficial 
use  of  it?  In  many  instances,  indeed,  the  income  is  the 
property  itself." — Hamilton's  Works,  vol.  Hi,  p.  523. 

As  in  theory  all  citizens  ought  to  contribute  in  propor- 
tion to  their  revenue  to  the  support  of  the  Government 
under  which  they  have  chosen  to  live  and  to  which  they 
^  look  for  protection  in  respect  to  their  persons  and  prop- 
''  erty,  the  exemption  of  any  from  an  income  tax  can  only 
be  justified  on  the  assumption  of  the  non-receipt  by  the 
citizen  of  an  income  beyond  what  is  necessary  to  defray 
the  expenses  of  a  moderate  living.  In  truth,  any  exemp- 
tion  under  a  general  income  tax  is  in  principle  an  act^pf 
chanty  olTThe  parT  of  the  Government  ll  is  interest- 
ing,~fheref ore,  to"  iToTe"wHere  the  authors  or  special  advo- 
cates of  the  income  tax  of  1884  proposed  to  draw  the 
line  in  respect  to  charity  and  as  to  the  amount  of  property 
the  possession  or  enjoyment  of  which,  in  their  opinion,  con- 
stituted riches. 

If  the  law  exempts  from  taxation  income  from  prop- 
erty to  the  extent  of  $2,000,  it  in  effect  exempts  property 
to  the  capital  value  of  $50,000  from  taxation,  for  at  pres- 
ent four  per  cent  is  about  the  average  profit  of  money, 
land,  or  other  property,  over  and  above  all  charges  and 
taxes,  and  at  that  rate  of  profit  $2,000  will  be  the  annual 
income  value  of  $50,000.    If,  however,  we  assume  five  per 


EXEMPTION  AND  FAVOURITISM.  543 

cent  as  about  the  present  annual  average  profit  on  money, 
land,  or  other  property  in  the  United  States,  over  and 
above  all  charges  and  taxes,  then  an  exemption  of  $4,000, 
the  rate  fixed  upon  in  the  income-tax  act  of  1884,  would 
represent  an  accumulation,  or  business,  or  profession,  of 
the  value  of  $80,000.  If  we  take  the  rate  at  which  the 
United  States  can  borrow  money — namely,  three  per  cent 
— then  an  exemption  of  $4,000  would  represent  an  accu- 
mulation of  a  citizen,  invested  in  United  States  securities, 
of  $133,333  -)-.  And,  according  to  any  fair  interpretation 
of  the  action  of  the  committee  which  reported  in  1894  a 
$4,000  exemption,  a  citizen  who  is  worth  less  than  $80,000 
of  ordinary  property  yielding  income,  or  $133,000  of  prop- 
erty invested  in  United  States  bonds,  was  a  legitimate 
object  for  national  charity;  the  above  sums  representing 
the  dividing  line  in  the  United  States  between  those  who 
were  entitled  to  be  regarded  as  poor  and  those  who  were 
entitled  to  be  considered  rich.  Such  an  assumption  finds 
no  precedent  in  fiscal  history,  and  was  an  unwarranted 
favouritism  to  nine  tenths  of  the  well-to-do  people  of  the 
country,  who  were  abundantly  able  to  pay  any  just  pro- 
portion of  the  taxes  which  the  Government  then  consid- 
ered it  necessary  to  impose  for  its  support.  Under  such 
circumstances  it  would  be  a  misnomer  to  call  such  ari 
extortion  taxation.  It  was  unmasked  confiscation  and  a 
burlesque  on  taxation.  In  the  case  of  the  income  tax  of 
1868,  when  the  amount  of  exemption  was  $1,000,  experi- 
ence demonstrated  that  more  than  nine  tenths  of  the  entire 
property  of  the  country,  and  more  than  ninety-nine  hun- 
dredths of  its  property  owners,  escaped  payment  from  this 
form  of  taxation. 

Again,  an  income  tax  which  exempts  $4,000  of  income 
in  the  United  States  can  not  be  defended  by  any  rational 
rule  or  doctrine,  legal  or  economic,  for  the  property  and 
income  exempted  would  be  infinitely  greater  in  the  aggre- 
gate than  the  property  and  the  income  of  the  same  class 
made  subject  to  the  tax.  Under  this  form  of  an  income 
tax  there  could  be  no  equality  between  taxed-producers 
and  non-taxed-producers,  and  more  especially  as  the  non- 
taxed-producers  will  be  the  most  numerous  and  the  great- 
est producers  in  quantity  as  a  body. 

No  man  is  a  freeman  whose  industry  and  capital  are 


y 


A/ 


544    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

subject  to  exaction,  and  from  which  his  immediate  com- 
petitors are  entirely  exem])t.  (Equality  of  taxation  of  all 
jpersons  and  property  brought  into  open  competition  under 
/like  circumstances  is  necessary  to  produce  equality  of  con- 
j'dition  for  all,  in  all  production  and  in  all  the  enjoyments 
I  of  life,  liberty,  and  property ;  and  government,  whatever 
.jC      name  it  may  assume,  is  a  despotism,  and  commits  acts 
V       of  flagrant  spoliation,  if  it  grants  exemption  or  exacts  a 

/greater  or  less  rate  of  tax  from  one  man  than  from  another 
man,  on  account  of  the  one  owning  or  having  in  his  pos- 
.    ,      session  more  or  less  of  the  same  class  of  property  which 
\*^  is  subject  to  the  tax.     If  it  were  proposed  to  levy  a  tax 
of  five  per  cent  on  annual  incomes  below  $4,000  in  amount, 
and  exempt  all  incomes  above  this  sum,  the  unequal  and 
discriminating  character  of  the  exemption  would   be  at 
once  apparent;  and  yet  an  income  tax  exempting  all  in- 
comes below  $4,000  is  equally  unjust  and  discriminating. 
In  either  case  the  exemption  can  not  be  founded  or  de- 
fended on  any  sound  principles  of  free  constitutional  gov- 
^      ernment;   and   is    simply   a   manifestation   of   tyrannical 
^  power,  under  whatever  form   of  government   it   may  be 
enforced.     The  great  republican  principle  of  equality  be- 
fore the  law,  and  constitutional  law  itself,  alike  preclude 
any  exemption  of  income  derived  from  like  property. 
\    I         M.  Thiers,  in  his  work  on  the  Rights  of  Property,  thus 
yV  I   forcibly  condemns  confiscation  under  the  name  or  form 
*-'     I    of  a  graduated  income  tax :  "  Proportionality,"  he  says, 
y^        1    "  is  a  principle,  but  progression  is  a  hateful  despotism. 
^  \  J^\\  •  •  •  To  exact  a  tenth  from  one,  a  fifth  from  another, 
pjv    \,\  and  a  third  from  another  is  pure  despotism — it  is  rob- 
^^         ^  bery." 
*  Finally,  the  principle  involved  in  this  question  of  dis- 

criminating income  taxation  is  one  that  affects  the  founda- 
tion and  continued  existence  of  every  free  government — 
namely,  the  equalitv  of  all  men  before  the  law.  Any  ex- 
emption whatever,  under  an  income  tax,  be  it  small  or 
great,  except  to  the  absolutely  indigent,  is  purely  arbi- 
trary ;  and  the  principle  once  allowed  may  be  carried  to 
any  extent.  Any  exemption  of  any  portion  of  the  same 
class  of  property  or  incomes  is  an  act  of  charity  which 
every  patriotic  American  citizen  ought  to  reject  upon 
principle  and  with  scorn,  except  under  circumstances  of 


/ 


INCOME  TAX  IN  THE   UNITED  STATES.  545 

great  want  and  destitution.  Equality  and  manhood,  there- 
fore, demand  and  require  uniformity  of  burden  in  what- 
ever is  the  subject  of  taxation. 

The  Inception  ok  Origin  of  the  Income  Tax  in 
THE  United  States. — The  subject  of  taxation  in  the  new 
Government  which  it  was  proposed  to  establish  in  place 
of  the  colonial  system  which  the  Kevolution  had  sup- 
planted, constituted  one  of  the  most  important  and  salient 
points  of  interest  in  the  convention  which  framed  the  Con- 
stitution of  the  United  States,  and  was  the  cause  of  much 
difference  of  opinion  among  its  members  and  earnest  con- 
tention between  the  States.  The  great  source  of  weakness 
of  the  Confederation  was  its  inability  to  levy  taxes  of  any 
kind  for  the  support  of  its  Government.  To  raise  revenue 
it  was  obliged  to  make  requisitions  upon  the  States  which 
were  respected  or  disregarded  at  their  pleasure.  Great  em- 
barrassments followed  the  consequent  inability  to  obtain 
the  necessary  funds  to  carry  on  the  Government.  One  of 
the  principal  objects  of  the  proposed  new  Government  was 
to  obviate  this  defect  of  the  Confederacy  by  conferring  au- 
thority upon  the  new  Government  by  which  taxes  could 
be  directly  laid  whenever  desired.  Great  difficulty  in  ac- 
complishing this  object  was  found  to  exist.  The  seaboard 
States  were  unwilling  to  give  up  their  right  to  lay  duties 
upon  imports,  which  were  their  chief  source  of  revenue. 
The  inland  States,  on  the  other  hand,  were  unwilling  to 
make  any  agreement  for  the  levying  of  taxes  directly  upon 
real  and  personal  property,  the  smaller  States  fearing  that 
they  would  be  overborne  by  unequal  burdens  forced  upon 
them  by  the  action  of  the  larger  States.  In  this  condition 
of  things  great  embarrassment  was  felt  by  the  meml^ers 
of  the  convention.  It  was  feared  at  times  that  the  effort 
to  form  a  new  Government  would  fail.  But  happily  a 
compromise  was  effected  by  an  agreement  that  direct  taxes 
should  be  levied  by  Congress  by  apportioning  them  among 
the  States  according  to  their  representation.  In  return 
for  this  concession  by  some  of  the  States,  the  other  States 
bordering  on  navigable  waters  consented  to  relinquish  to 
the  new  Government  the  control  of  duties,  imposts,  and 
excises,  and  the  regulation  of  commerce,  with  the  con- 
dition that  the  duties,  imposts,  and  excises  should  he  uni- 
form throughout  the  United  States;  so  that,  on  the  one 


546    THE  THEORY  AND   PRACTICE  OP  TAXATION. 

hand,  anything  like  oppression  or  undue  advantage  of  any 
one  State  over  the  others  would  be  prevented  by  the  appor- 
tionment of  the  direct  taxes  among  the  States  according 
to  their  representation;  and,  on  the  other  hand,  anything 
like  oppression  or  hardship  in  the  levying  of  duties,  im- 
posts, and  excises  would  be  avoided  by  the  provision  that 
they  should  be  uniform  throughout  the  United  States. 

The  Federal  Constitution  accordingly  upon  completion 
divided  the  taxes  that  Congress  might  impose  under  it 
into  two  classes :  those  which  are  direct  and  those  which 
are  indirect,  or,  as  the  letter  of  the  Constitution  expresses 
it,  "  duties,  imposts,  and  excises."  It  also  provides  that 
the  former  shall  be  apportioned,  equally  with  representa- 
tion in  Congress,  among  the  several  States  of  the  Union, 
according  to  their  respective  numbers,  that  "  no  capita- 
tion or  direct  taxes  shall  be  laid  unless  in  proportion 
to  the  census  " ;  and  that  the  latter  class  of  taxes  shall  be 
"  uniform  throughout  the  United  States." 

But  from  the  beginning  of  the  Federal  Government 
the  determination  of  the  exact  legal  meaning  of  the  word 
"  direct "  as  applied  in  the  Constitution  to  taxation  has 
been  one  of  great  difficulty  and  embarrassment,  although 
the  doctrine  in  England  and  her  colonies,  before  the  adop- 
tion of  the  Constitution,  was  a  favourite  one,  that  "  taxa- 
tion and  representation  should  go  together."  * 

*  The  franiers  of  the  Constitution  intended  that  the  appor- 
tionment of  direct  taxes  among  the  States  should  be  in  more  exact 
ratio  to  the  population  even  than  it  is  possible  to  apportion  the 
representation.  For  example:  Suppose  one  representative  to  every 
ninety  thousand  inhabitants,  a  State  might  have  a  large  fraction 
left  over;  but  the  apportionment  of  direct  taxes  was  designed  to 
be  Avith  mathematical  accuracy  to  the  precise  number  of  persons 
ascertained  by  the  census.  After  the  first  apportionment  of  repre- 
sentatives had  been  made  in  the  Federal  Convention  by  estimated 
population,  before  an  actual  census,  it  was  held  that  the  estimate 
of  the  population  of  the  different  States  was  not  sufficiently  accu- 
rate for  the  apportionment  of  a  direct  tax ;  and  that,  consequently, 
the  General  Covernment  could  not  lay  a  direct  tax  until  a  census 
should  have  been  taken.  Elbridge  Gerry,  of  Massachusetts,  moved 
that  until  a  census  be  taken  direct  taxation  be  apportioned  to  the 
number  of  representatives.  Mr.  Carroll,  of  Maryland,  replied  that 
"  the  niimher  of  rejiresentatires  did  vnt  admit  of  a  proportion  exact 
enough  for  a  rule  of  taxation"  (Elliot's  Debates,  v,  4.51).  Mr. 
Ellsworth  "  thought  such  a  rule  unjust.  There  was  a  great  differ- 
ence between  the  number  of  inhabitants,  as  a  rule,  in  this  case. 


MEANING  OF  DIRECT  TAX.  547 

All  historical  data  explanatory  of  the  constitutional 
meaning  of  the  term  "  direct "  have  been  of  an  indirect 
character,  and  so  imperfect  that  the  court  has  heretofore 
apparently  not  regarded  them  as  worthy  of  consideration. 
But  this  condition  of  things  no  longer  exists;  for  in  the 
brief  submitted  to,  and  in  the  argument  made  before  the 
United  States  Supreme  Court  adverse  to  the  constitu- 
tionality of  the  provisions  of  the  income-tax  enactment 
of  August,  1894,  by  Hon.  Clarence  A.  Seward,  a  depart- 
ment of  national  history  which  no  historian  or  jurist  had 
ever  before  completely  exploited,  was  so  traversed  by  him 
that  it  is  difficult  to  see  how  any  one  can  acquaint  himself 

Even  if  the  former  were  proportioned  as  nearly  as  possible  to  the 
latter,  it  would  be  a  very  inaccurate  rule.  A  State  might  have 
one  representative  only,  that  had  inhabitants  enough  for  one  and 
a  half  or  more,  if  fractions  could  be  applied"  (ibid.,  453).  Mr. 
Gerry's  motion  was  defeated.  The  convention,  after  debate,  de- 
cided that  direct  taxes  must  he  apportioned  in  the  States  in  more 
exact  ratio  to  the  population  than  the  representatives  could  pos- 
sibly be  apportioned  (Elliot,  v,  453). 

Many  of  the  leading  patriots  of  the  Revolution — Patrick  Henry 
among  them — were  distrustful  of  granting  this  power,  even  with 
the  restriction  placed  upon  its  exercise.  Massachusetts  accompanied 
her  adoption  of  the  Constitution  with  a  resolution,  signed  by  John 
Hancock,  recommending  an  amendment  of  the  Constitution  which 
should  prohibit  Congress  from  levying  a  direct  tax  until  they 
should  first  have  made  a  requisition  on  the  States  (I  Elliot,  323). 
The  same  amendment,  Avord  for  word,  was  recommended  by  the 
State  of  New  York  and  the  State  of  North  Carolina,  and  similar 
resolutions  were  adopted  by  South  Carolina,  Rhode  Island,  and 
Virginia. 

In  the  apportionment  of  the  direct  taxes  which  had  been  laid 
by  Congress  previous  to  the  income  tax  the  ratio  to  the  census  was 
preserved  with  scrupulous  accuracy,  and  the  actual  use  of  the 
authority  up  to  the  time  of  the  imposition  of  the  income  tax  was 
in  accordance  with  the  understanding  of  the  framers  of  the  Con- 
stitution. 

]\Ir.  Madison,  who  was  probably  the  most  active  participant  and 
member  in  the  convention  that  framed  the  Constitution  of  the 
United  States,  in  a  letter  written  after  the  adoption  of  the  Con- 
stitution but  before  the  organization  of  the  new  Government,  and 
never  discovered  and  its  contents  made  public  until  1895,  embodies 
much  new  information  in  regard  to  the  intent  and  purpose  of  the 
term  "  direct ''  taxes  as  used  in  the  Constitution  and  in  regard  to 
the  understanding  of  the  people  of  the  United  States  concerning 
that  term  when  they  adopted  the  Constitution.  It  shows,  what  is 
extraordinary,  "  that  the  term,  in  the  estimation  of  the  men  Avho 
used  it,  did  not  refer  to  the  kind,  or  character,  or  nature  of  the  tax 


548    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

with  its  results  and  doubt  that,  although  the  framers  of 
the  Constitution  and  the  people  they  represented  might 
not  fully  agree  as  to  a  full  and  comprehensive  definition 
of  a  direct  tax,  there  was  apparently  a  perfect  unanimity 
of  opinion  among  them  that  an  income  tax  was  a  typical 
example  of  that  kind  of  taxation. 

Previous  to  the  adoption  of  the  Constitution  there  were 
no  Federal  taxes,  and  all  precedents  for  helping  to  a  cor- 
rect determination  of  the  constitutional  meaning  of  direct 
taxation  must  therefore  be  drawn  from  the  prior  experi- 
ence of  the  several  States. 

What  was  that  experience?    Eecent  historical  research 

itself,  and  that  the  framers  of  the  Constitution  never  considered 
the  subject  of  taxation  from  the  philosophical  or  politico-economic 
point  of  view,  but  were  wrestling  with  the  stern  necessities  of  the 
question.  How  shall  the  people  of  these  several  States  be  induced  to 
pay  a  Federal  tax? 

"Manifestly,  it  could  be  raised  by  but  one  of  two  methods: 
either  itulirectli/,  by  '  requisitions '  on  the  several  States,  as  under 
the  still  existing  Confederacy,  or  by  taxes  laid  directly  by  the 
Federal  Government.  Duties  and  excises  were  not  indirect  taxes; 
they  were  not  under  discussion  or  consideration;  they  were  not 
in  the  case  at  all.  Indirect  taxes  were  taxes  procured  indirectly  by 
'requisitions'  on  the  States;  direct  tuxes  were  taxes  laid  directly  by 
the  Federal  Government.  The  framers  of  tlie  Constitution  evidently 
had  never  looked  at  the  subject  from  a  politico-economic  point  of 
view;  they  had  never  given  a  thought  to  the  philosophy  of  taxa- 
tion ;  the  term  '  direct  taxes,'  as  they  used  it,  did  not  refer  to  the 
kind  or  character  or  nature  of  the  tax,  but  to  the  fact  that  such 
taxes  were  no  longer  to  be  laid  indirectly  through  '  requisitions  ' 
upon  the  States,  but  directly  upon  the  taxpayer  by  the  newly 
constituted  taxing  power.  Indirect  taxes  would  be  a  thing  of  the 
past,  of  the  expiring  Confederation ;  taxes  directly  laid  by  the 
future  Government  would  supply  its  extraordinary  revenue  when 
needed. 

"  But  here  State  jealousy  had  entered  into  the  problem  which 
the  framers  were  solving — the  difficult  problem  of  taking  power 
from  the  individual  States  and  transferring  it  to  this  new,  un- 
known, and  distant  central  authority.  If  Congress  could  lay  a  tax 
directly  upon  the  property  of  the  citizens  of  all  the  States,  might  it 
not  be  so  laid  that  the  citizens  of  Virginia  would  have  to  pay  more 
than  the  citizens  of  New  York?  How  should  the  power  so  trans- 
ferred be  restrained? 

"  The  convention  answered  the  question  by  the  word  popula- 
tion. The  new  power  of  direct  taxation  should  be  given  to  Con- 
gress, but  the  system  of  quotas,  with  which  the  people  of  the 
country  were  fainiliar,  should  be  retained." — New  York  Nation. 

For  some  further  discussion  of  this  question  see  ante,  p.  357. 


APPORTIONMENT.  549 

shows  that  Massachusetts  had  taxed  incomes  for  more 
than  a  hundred  years  prior  to  the  assembling  of  the  Con- 
stitutional Convention;  other  of  the  leading  States  were 
imposing  like  taxes  at  or  about  1787,  and  the  receipts 
therefrom  were  used  to  help  pay  the  quotas  demanded  by 
the  then  Government  of  the  Confederation  for  the  main- 
tenance of  the  Federal  Government.  The  income  tax  so 
paid,  and  all  the  other  internal  taxes  collected  by  the 
States,  were  known  as  and  called  direct  taxes  and  are  so 
called  to-day. 

The   Constitutional   Convention   empowered   Congress 
to  levy  any  of  the  authorized  forms  of  taxation  on  the 
States ;  but  the  levy  of  direct  taxes  was  guarded  by  a 
provision  that  such  taxes  should  be  apportioned  to  the 
population.     The  explanation  of  this  curious  anomaly  is 
that  the  consensus  of  opinion  in  the  convention  was  that 
wealth  at  that  period  was  so  equitably  divided  among  the 
people  of  the  States  that  population  was  the  best  measure 
of  wealth  and  consequently  of  equitable  taxation.     But 
what  would  become  of  the  element  of  equality  if  the  levy 
was  in  the  form  of  indirect  taxes — duties,  imposts,  and 
excises — which,  falling  on  the  consumption  of  tea,  coffee, 
sugar,  spirits,  and  the  like,  leave  it  optional  with  the  citi-  -, 
zen  in  a  great  degree  whether  he  will  pay  or  not  ?    HamiP^ 
ton  certainly  thought  that  the  door  had  been  effectually  ^ 
closed  against  the  possibility  of  any  such  evasion,  for,, 
when  speaking  of  direct  taxes  in  The  Federalist,  he  says ; ' 
"  An  actual  census   or  enumeration  of  the  people  mustj 
furnish  the  rule ;  a  circumstance  which  effectually  shuj 
the  door  to  partiality  or  evasion." 

But  any  doubt  on  this  subject  ought  no  longer  i6  be 
tolerated,  for  we  now  have,  almost  for  the  first  tirne, 
definition  of  or  distinction  between  direct   and/indirect 
taxes  that  is  founded  on  soimd  philosophy  and^  large  ex- 
perience, and  can  not  be  refuted — ^namely,  ^direct  ^x  lH.   .     > 
has  always  in  it  an  element  of  compulsion./'riie  person  j    S-.^ 
against  whom  or  on  whose  property  or  income  a  direct  tax   ^    ^^^ 
is  levied  has  no   option  whether  or  when  he  shall  pay. 
There  is  nothing  voluntary  about  it.     On  the  other  hand, 
an  indirect  tax,  whoever  may  first  advance  it,  is  paid  volun- 
tarily, and  primarily  by  the  consumer  of  the  taxed  article. 

But  the  most  important  and  vital  issue  involved  in 


-^ 


550    THE  THEORY  AND   PRACTICE  OF  TAXATION. 


V-. 


the  income  tax  enacted  1894  (x\ugust  18th)  was  that  it 
designedly  provided  for  discriminatinffjaxation,  and  this 
fact  may  be  best  demonstrated  and  brought  to  popular 
comprehension  in  the  following  manner:  In  a  recent  in- 
terview (1895)  with  a  leading  British  parliamentary  au- 
thority, the  conversation  turned  on  the  new  and  unprece- 
dented discriminating  rates  in  the  legacy  and  succession 
taxes  imposed  by  the  present  British  Parliament,  and  the 
opinion  of  the  writer  was  asked  respecting  them.  He  re- 
turned, offhand,  the  answer  that  he  could  only  discuss 
them  from  a  British  point  of  view,  for,  under  the  Consti- 
tution of  the  United  States,  such  taxes  could  not  be  levied 
by  the  Federal  Government,  contemporaneously.  And 
how  promptly  foreign  authorities  recognise  the  truth  of 
this  position  is  shown  by  the  following  extract  from  an  edi- 
torial in  the  London  Times  on  the  phase  of  the  income 
statute  then  before  the  United  States  Supreme  Court : 
"  Were  we,"  it  said,  "  under  the  United  States  Constitu- 
tion, Sir  William  Harcourt's  budget  would  have  been  de- 
clared unconstitutional.  Populist  leaders  in  America  must 
envy  us  the  freedom  of  dealing  with  other  people's  property, 
enjoyed  in  this  motherland  of  liberty."  This  conversation 
led  to  a  historical  investigation,  and  the  recognition  of 
what  seemed  to  be  a  fact  little  or  not  before  noted,  that 
the  United  States  is  the  only  nation  that  now  exists  or 
ever  has  existed  which,  through  constitutional  or  other 
provisions,  has,  or  has  had,  any  limitations  on  its  Gov- 
ernment in  respect  to  the  general  exercise  or  extent  of 
the  power  of  taxation.  If  there  are  any  exceptions,  they 
are  to  be  found  in  the  legislative  enactments  of  the  French 
National  Assembly  of  1789,  and  possibly  in  what  is  now 
known  as  the  referendum  system  of  Switzerland. 

But  a  government  that  has  no  limitations  on  its  power 
of  taxation,  that  can  arbitrarily  take  in  whatever  manner, 
to  whatever  extent,  and  at  whatever  time  it  pleases,  the 
property  of  its  people  or  subjects,  whether  that  right  exists 
in  theory,  as  in  England,  or  in  actual  practice,  as  in  Ger- 
many, Austria,  and  Russia,  is  a  despotism.  If  this  as- 
sumption and  reasoning  may  seem  to  any  one  extrava- 
gant and  unwarranted,  his  attention  is  respectfully  asked 
to  the  following  expression  of  opinion  on  this  subject  by 
the  United  States  Supreme  Court,  as  given  through  Jus- 


CLASS  LEGISLATION.  551 

tice  Miller  in  the  celebrated  "  Loan  Association  vs.  To- 
peka '''  case  (20  Wallace,  665)  : 

"It  must  be  conceded  that  there  are  rights  in  every 
free  government  beyond  the  control  of  the  State.  A  gov- 
ernment which  recognised  no  such  rights,  which  held  the 
lives,  the  liberty,  and  the  property  of  its  citizens  subject 
at  all  times  to  the  absolute  disposition  and  unbounded- 
control  of  even  the  most  democratic  depository  of  power, 
is  after  all  but  a  despotism.  It  is  true  it  is  a  despotism 
of  the  many — of  the  majority,  if  you  choose  to  call  it  so — 
but  it  is  none  the  less  a  despotism.^' 

And  yet  can  there  be  any  doubt  that  the  American 
people  would  have  abandoned  their  proud  historical  posi- 
tion if  the  Supreme  Court  had  decided  in  1895  that  the 
income-tax  enactment  of  1894  was  constitutional? 

For  such  a  decision  would  practically  have  removed 
any  constitutional  limitation  on  the  exercise  of  the  power 
of  taxation  by  Congress,  and  in  this  way :  First,  by  estab- 
lishing that  an  income  tax  is  not  a  direct  tax,  there  can 
be  practically  thereafter  no  direct  taxes  to  which  the  con- 
stitutional mandate  of  apportionment  will  apply,  for 
popular  sentiment  will  never  sanction  the  enactment  of  a 
general  "  capitation  "  or  "  poll "  tax,  or  a  direct  tax  on 
land. 

Then  it  certainly  could  not  be  unconstitutional  to  multi- 
ply classes  for  taxation  according  to  wealth  and  increase 
the  rate  up  to  the  point  of  confiscation.  Can  any  one, 
furthermore,  doubt  that  the  primary  object  of  the  enact- 
ment proposed  in  1894  was  not  the  raising  of  revenue  for 
the  national  Treasury,  but  rather  to  permit  a  part  of 
the  people  of  the  country  to  impose  discriminating  taxes 
on  the  people  of  another  part,  and  then  fixing  a  general 
exemption  at  so  high  a  rate  that  those  of  the  first  part, 
who  are  entirely  able,  should  not  be  required  to  pay  any- 
thing? If  this  exemption,  in  place  of  $4,000,  had  been 
fixed  only  to  include  the  average  annual  wages  or  earn- 
ings of  the  working  masses  of  the  country,  is  it  probable 
that  Congress  would  have  even  considered  the  enactment 
of  the  income  tax  of  1894?  Even  before  the  form  of  the 
statute  of  1894  was  reported  from  the  proper  committee, 
speculation  was  indulged  in  to  the  effect  that  the  con- 
stituents of  certain  districts  would  not  have  to  pay  any- 


552    THE   THEORY  AND   PRACTICE   OF   TAXATION. 


.J^y 


thing  in  the  way  of  income  taxes  under  it.  That  the  Gov- 
ernment also  practically  conceded  that  the  income-tax 
enactment  of  1894  was  pre-eminently  class  legislation  is 
also  evident  from  the  following  extract  from  a  statement 
made  in  a  brief  by  the  Attorney  General  of  the  United 
States  pending  the  consideration  of  the  income-tax  ques- 
tion by  the  United  States  Supreme  Court :  *  "  Congress," 
he  said,  "  has  adopted  as  the  minimum  income  for  the 
purpose  of  taxation  the  limit  of  four  thousand  dollars. 
This  limit  may  be  said  to  divide  the  upper  from  the  lower 
middle  class,  financially  speaking,  in  the  larger  cities,  or  to 
divide  the  middle  class  from  the  wealthy  in  the  country 
districts."  f 

Attention  is  next  asked  to  what  seems  to  be  by  far  the 
most  serious  point  in  this  whole  matter,  and  which  has 
not  as  yet  attracted  public  attention  in  any  marked  degree. 
The  American  people  have  been  trying  an  experiment  as  a 
nation  which  has  never  before  been  attempted  by  any  other 
nation — namely,  that  of  universal  suffrage,  by  which  the 
power  to  elect  legislators  and  shape  the  policy  of  the  Gov- 
ernment has  been  put  under  the  control  of  those  who, 
through  no  fault  of  their  own,  have  not  enjoyed  such  edu- 
cational facilities  as  will  enable  them  independently  to 
form  correct  opinions  on  great  constitutional,  legal,  finan- 
cial, or  economic  questions,  thereby  creating  almost  end- 
less possibilities  for  injudicious  legislation.  How  such 
possibilities  were  being  made  actualities  in  the  case  of  the 
income-tax  statute  of  1894  can  be  made  evident  to  almost 
'any  one  who  makes  himself  fully  acquainted  with  the  cir- 


*  By  an  enactment  of  Congress,  August  18.  1804,  establishing  an 
income  tax  for  the  United  States,  a  tax  of  tico  per  cent  was  imposed 
on  the  gains,  profits,  and  incomes  of  persons  derived  from  any  kind 
of  property,  including  rent  and  the  growth  and  produce  of  lands, 
and  profits  made  upon  the  sale  of  land  if  purchased  within  two 
years.  Every  element  that  could  make  real  or  personal  property 
a  source  of  value  to  an  owner  was  taxed.  An  excise  duty  was 
also  imposed  upon  income  derived  from  any  profession,  trade,  em- 
ployment, or  avocation.  The  tax  upon  persons  generally  was  not 
upon  their  entire  income,  but  on  the  excess  over  and  above  the 
sum  of  four  thousand  dollars.  All  persons  having  incomes  of  four 
thousand  dollars  or  under  were  exempt. 

t  Opening  argument  by  William  I).  Guthrie,  in  support  of  the 
contention  that  the  income-tax  law  of  1894  was  unconstitutional. 


SUFFRAGE  AND  TAXATION.  553 

cumstances  attendant  on  its  inception  and  almost  concur- 
rent legal  adjudications  and  contentions. 

The  members  of  the  convention  that  framed  the  Con- 
stitution of  the  United  States  had  the  very  questions  be- 
fore them  that  have  already  been  in  issue  before  the  Ameri- 
can people,  and  may  at  no  distant  day  be  again  presented 
for  their  serious   consideration.      It  was   inequalities   in 
methods  and  facilities  for  the  raising  of  revenue  among  the 
States  of  the  Confederation  for  the  support  of  the  Federal 
Government  that  threatened  the  existence  of  the  Confed- 
eration and  necessitated  the  assemblage  of  the  Constitu- 
tional Convention.     And  the  members  of  this  convention, 
taught  by  experience,  incorporated  in  their  vi^ork  the  pro- 
visions respecting  the  exercise  of  the  power  of  taxation, 
the  meaning  and  validity  of  which  are  now  called  in  ques- 
tion.    And  in  so  doing  they  gave  to  the  people  of  the 
United  States  an  instrument  of  which  one  great  feature, 
if  not  its  chief  feature,  and  one  not  recognised  as  it  ought 
to  be,  is  that  it  guards  the  rights  of  minorities  as  no  other 
governmental  instrument  devised  by  mortal  man  ever  has 
done.     As  long  as  this  great  feature  is  preserved  intact 
and  the  nation  adds  to  it  another  principle,  that  every 
question   of  doubt   concerning   it   shall   be   always   deter- 
mined in  a  way  to  strengthen  it,  the  perpetuity  of  the  pres- 
ent  Government  is   assured.       But   if   now  the   Supreme 
Court  invalidates  this  great  feature  by  nullifying  the  man- 
date of  the  Constitution,  and  thereby  practically  removes 
all  limitations  on  the  power  of  Congress  to  impose  taxes, 
sanctions    discriminating    taxation    and    disregards    the 
rights  of  minorities,  the  hour  when  this  Government  enters— J 
upon  the  path  of  decadence  will  have  struck.     How  puerile   ^     r~ 
it  is  for  any  one  to  favour  such  a  decision  and  its  inevitable  .:;"    'ji  " 
results,   on  the  ground   that   a   contrary   decision   would  T_ 
oblige  the  Government  to  repay  to  the  people  a  large  sum  ^ 
of  money  that  it  had  illegally  collected  from  them!     This' 
would,  however,  have  one  recommendation — namely,  thatC 
it  would  approximately  solve  the  difficult  question,  Howv 
much,   in  terms   of  money,   is   the  existing   Government 
worth  ? 

Conclusion. — The  following  extract,  incorporated  bj 
Mr.  Justice  Field  in  his  opinion,  delivered  in  concurrence^! 
with  a  majority  of  his  colleagues,  and  adverse  to  the  con-!i^ 
36 


554    THE  THEORY  AND   PRACTICE   OF   TAXATION. 


^X^^ 


.^^, 


a 


.^ 


A 


stitutionality  of  the  income-tax  statute  of  1894,  which 
imposed  discriminating  taxes  on  the  American  people, 
is  also  pre-eminently  worthy  of  notice  in  connection  with 
any  general  history  or  review  of  this  great  subject : 

"  Here  I  close.  I  could  not  say  less  in  view  of  questions 
of  such  gravity  that  go  down  to  the  very  foundation  of 
the  Government.  If  the  provisions  of  the  Constitution 
can  be  set  aside  by  an  act  of  Congress,  where  is  the  course 
of  usurpation  to  end?  The  present  assault  upon  capital 
is  but  the  beginning.     It  will  be  but  the  stepping-stone 

■  to  others,  larger  and  more  sweeping,  till  our  political  con- 
tests  will  become  a  war  of  the  poor  against  the  rich — a  war 

^  .constantly  growing  in  intensity  and  bitterness.  'If  the 
court  sanctions  the  power  of  discriminating  taxation,  and 
nullifies  the  uniformity  mandate  of  the  Constitution,'  as 
said  by  one  who  has  been  all  his  life  a  student  of  our  insti- 
tutions, '  it  will  mark  the  hour  when  the  sure  decadence 
of  our  present  Government  will  commence.'  If  the  purely 
arbitrary  limitation  of  four  thousand  dollars  in  the  pres- 
ent law  can  be  sustained,  none  having  less  than  that 
amount  of  property  being  assessed  or  taxed  for  the  sup- 
port of  the  Government,  the  limitation  of  future  Con- 
gresses may  be  fixed  at  a  much  larger  sum,  at  five  or  ten 
or  twenty  thousand  dollars,  parties  possessing  that  amount 
alone  being  bound  to  bear  the  burdens  of  government ;  or 
the  limitation  may  be  designated  at  such  an  amount  as 
a  board  of  walking  delegates  may  deem  necessary.  There 
is  no  safety  in  allowing  the  limitation  to  be  adjusted  ex- 
cept in  strict  compliance  with  the  mandates  of  the  Con- 
stitution which  require  its  taxation  to  be  uniform  in  oper- 
ation and,  so  far  as  practicable,  in  proportion  to  their 
property,  equal  upon  all  citizens.  Unless  the  rule  of  the 
Constitution  governs,  a  majority  may  fix  the  limitation 
at  such  rate  as  will  not  include  any  of  their  own  number. 

/  "  Cooley,  in  his  Treatise  on  Taxation  (second  edition, 

215),  justly  observes  that  'it  is  difficult  to  conceive  of 
a  justifiable  exemption  law  which  should  select  single  in- 
dividuals or  corporations,  or  single  articles  of  property, 
and,  taking  them  out  of  the  class  to  which  they  belong, 
make  them  the  subject  of  capricious  legislative  favour. 
Such  favouritism  could  make  no  pretence  to  equality;  it 

J    would  lack  the  substance  of  legitimate  tax  legislation.' 


DISCRIMINATION  CONDEMNED.  555 

"  The  income-tax  law  under  consideration  is  marked 
by  discriminating  features  which  affect  the  whole  law.  It 
discriminates  between  those  who  receive  an  income  of  four 
thousand  dollars  and  those  who  do  not.  It  thus  vitiates, 
in  my  judgment,  by  this  arbitrary  discrimination,  the 
whole  legislation.  Hamilton  says  in  one  of  his  papers 
(The  Continentalist)  :  '  The  genius  of  liberty  repudiates 
everything  arbitrary  in  taxation.  It  exacts  that  every 
man,  by  a  definite  and  general  rule,  shall  know  what  pro- 
portion of  his  property  the  State  demands.  Whatever 
liberty  we  may  boast  of  in  theory,  it  can  not  exist  in  fact 
while  [arbitrary]  assessments  continue.'  The  legislation, 
in  the  discrimination  it  makes,  is  class  legislation.  When- 
ever a  distinction  is  made  in  the  burdens  a  law  imposes  or 
in  the  benefits  it  confers  on  any  citizens  by  reason  of 
their  birth,  or  wealth,  or  religion,  it  is  class  legislation, 
and  leads  inevitably  to  oppression  and  abuses,  and  to  gen- 
eral unrest  and  disturbance  in  society.  It  was  hoped  and 
believed  that  the  great  amendments  to  the  Constitution 
which  followed  the  late  civil  war  had  rendered  such  legis- 
lation impossible  for  all  future  time.  But  the  objection- 
able legislation  reappears  in  the  act  under  consideration. 
It  is  the  same  in  essential  character  as  that  of  the  English 
income  statute  of  1691,  which  taxed  Protestants  at  a  cer- 
tain rate,  Catholics,  as  a  class,  at  double  the  rate  of  Protes- 
tants, and  Jews  at  another  and  separate  rate.  Under"\ 
wise  and  constitutional  legislation  every  citizen  should  \ 
contribute  his  proportion,  however  small  the  sum,  to  the  1 
support  of  the  Government,  and  it  is  no  kindness  to  urge-/ 
any  of  our  citizens  to  escape  from  that  obligation.  If  he  1 
contributes  the  smallest  mite  of  his  earnings  to  that  pur-  \ 
pose  he  will  have  a  greater  regard  for  the  Government  and 
more  self-respect  for  himself,  feeling  that,  though  he  is 
poor  in  fact,  he  is  not  a  pauper  of  his  Government.  And 
it  is  to  be  hoped  that,  whatever  woes  and  embarrassments 
may  betide  our  people,  they  may  never  lose  their  manliness 
and  self-respect.  Those  qualities  preserved,  they  will  ulti- 
mately triumph  over  all  reverses  of  fortune."  - — 


c 

h 


CHAPTER  XXV. 

AVHAT  SHOULD  BE  TAXED,  AND  HOW  IT   SHOULD  BE  TAXED. 

Some  years  since  (1873)  a  citizen  of  Tennessee,  Mr. 
Enoch  Ensley,  making  no  pretence  of  scholastic  learning 
or  private  interests,  but  earnestly  desiring  the  material 
development  of  his  section  of  the  country  (Tennessee), 
and  that  it  should  not  be  retarded  by  the  adoption  of  an 
unsound  system  of  State  or  municipal  taxation,  published 
in  the  form  of  a  letter  addressed  to  the  Governor  of  the 
State  a  little  pamphlet  entitled  What  should  be  Taxed, 
and  How  it  should  be  Taxed,  which  set  forth  certain 
fundamental  propositions  in  respect  to  local  taxation, 
and  supported  them  with  such  homely  and  clear  illustra- 
tions as  to  entitle  the  essay  to  a  permanent  place  in  eco- 
nomic and  legal  literature. 

Mr.  Ensley  commences  by  proposing  the  following  rule 
or  maxim  as  the  basis  for  a  State  (Tennessee),  city,  or 
county  system  of  taxation: 

"  Never  tax  anything  that  would  be  of  value  to 
YOUR  State,  that  could  and  would  run  away,  or  that 
could  and  would  come  to  you." 

Mr.  Ensley  then  lays  down  the  proposition  that  prop- 
erty naturally  divides  itself  into  iwo  classes — movable  and 
immovable;  that  the  former,  as  its  name  implies,  can  be 
moved  from  one  place  to  another  as  its  owner  chooses, 
while  the  latter  is  fixed  and  can  not  budge  an  inch,  no 
matter  what  its  owner  chooses.  "  I  hold  it  to  be  true  that 
immovable  property  has  no  value  till  it  is  occupied  or 
located  upon,  or  brought  to  subsist  or  employ,  movable 
property;  and,  as  a  rule,  the  more  it  employs  or  subsists, 
the  more  valuable  it  becomes ;  and  the  greater  the  induce- 
ments or  attractions  it  offers  movable  property,  the  more 
it  will  have  to  locate  upon  it " ;  citing  in  proof  and  illus- 
556 


MOVABLE  AND  IMMOVABLE  PROPERTY. 


557 


f 


tration  the  fact  that  the  best  acre  of  land  in  America  is  '^^ 
worth  nothing  till  man  goes  upon  it  with  his  axe,  horse,  ^ 
cow,  etc.,  and  puts  it  in  cultivation  and  brings  it  to  subi 
sist  himself,  horse,  cow,  etc. ;  and  from  that  moment  it^ 
commences  to  have  a  value,  by  reason  of  the  fact  that  it^ 
employs  or  subsists  the  man  (who,  if  he  can  be  called 
property  at  all,  is  certainly  movable  property)  as  well  as< 
the  horse,  cow,  etc.  And  if  this  acre  of  ground  for  any] 
cause  should  become  attractive  to  and  employ  double  the 
amount  of  movable  property,  it  will  as  a  general  rule  be-'-— ^ 
come  doubly  valuable;  and  so  on,  if  it  should  become  at-S^l^ 
tractive  to  and  employ  profitably  ten  or  a  hundred  or  ^^ 
thousand  fold  more  movable  property,  it  would  become  in,  ^  <r^ 
like  ratio  more  valuable,  even  up  to  the  value  of  milli^Sr  >  "^ 
of  dollars  per  acre,  by  reason  of  the  fact  that  it  offers  tc  "D 
attractions,  and  has  employed  upon  it  profitably  five,  ten,^C^  S^ 
or  fifteen  millions  of  dollars'  worth  of  movable  property.  ■*  ^ 
Of  course,  when  ground  gets  beyond  a  certain  value  iti!f< 
must  be  put  to  other  uses  than  agriculture,  and  just  this 
process  acres  of  ground  have  doubtless  passed  througl^ 
since  the  Dutch  first  landed  on  Manhattan  Island. 

There  are  exceptions  to  this  rule  —  that  immovable^ 
property  is  valuable  as  it  has  movable  property  employed 
directly  on  it — for  it  frequently  has  a  greater  value  than 
movable  property  employed  directly  on  it  would  warrant. 
It  has  a  value  reflected  from  the  employment  of  movable 
property  employed  on  immovable  property  near  by,  as 
in  the  case  of  residences  in  or  near  cities.  For  instance, 
the  use  of  movable  property  on  a  Broadway  lot  gives  a 
great  value  to  the  merchant's  residence  up  town,  by  reason 
of  the  fact  that  it  is  sufficiently  near  and  convenient  for 
it  to  be  in  demand  for  the  transaction  of  business  daily 
at  his  store,  all  of  which  is  attributable  to  the  employ- 
ment of  movable  property  at  the  store. 

The  thrift  or  profit  which  immovable  property  offers 
to  movable  property  helps  to  regulate  its  value.  For  in- 
stance, a  man  owns  two  pieces  of  property  alike,  say  in 
different  towns,  rented  out  to  merchants  of  equal  capital ; 
one  is  enabled  to  make  seven  per  cent  per  annum  only  on 
his  capital,  for  the  reason  that  he  has  to  pay  three  per 
cent  tax  on  his  capital,  and  the  other  makes  ten  per  cent 
net,  and  pays  no  tax.     The  property  paying  ten  per  cent 


558    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

will  be  the  most  valuable,  for  it  will  pay  the  largest  rent, 
because  there  will  be  more  applicants  for  it  than  for  the 
seven  per  cent ;  and  the  law  of  supply  and  demand  govern- 
ing, it  must  rent  for  more.  It  is,  however,  impossible, 
as  a  general  thing,  for  these  two  merchants  to  remain  of 
equal  capital.  The  ten-per-cent  man  will  soon  have  more 
capital,  from  his  extra  thrift;  and  the  seven-per-cent  man, 
seeing  his  prosperity,  is  apt  to  pull  up  stakes  and  quit 
his  town,  and  move  to  the  ten-per-cent  town;  and  other 
merchants  will  perhaps  do  the  same  thing,  until,  by  com- 
petition increasing  in  the  one  town  by  other  merchants 
coming  in,  and  decreasing  in  the  other  by  their  going  out, 
profits  may  be  made  the  same.  This,  however,  is  not  apt 
to  make  profits  the  same  in  a  country  like  ours,  for  there 
is  generally  new  trade  to  be  looked  up  to  keep  pace  with 
the  newcomers.  So  the  result  would  be  that  the  new- 
comers would  continue  to  go  to  the  ten-per-cent  town 
from  the  seven-per-cent  town  and  other  places,  till  the 
one  becomes  a  large  and  prosperous  city,  and  the  other  a 
dilapidated,  languishing  town.  It  will  be  easy  then  to 
say  which  storehouse  is  the  most  valuable. 

In  this  there  is  little  of  novelty;  but  in  the  homely, 
clear  illustrations  which  Mr.  Ensley  employed  for  im- 
pressing his  fellow-citizens  with  the  truth  of  his  proposi- 
tions, novelty  is  not  wanting.  Thus,  for  example,  he 
says: 

"  I  hold  that,  of  all  men,  the  real-estate,  or  fixed-prop- 
erty man,  is  most  interested  in  the  rule  or  motto  I  have 
adopted.  To  illustrate,  I  will  say  that  there  is  an  acre 
of  ground  in  the  city  of  Memphis,  Tennessee,  say  in  front 
of  the  Overton  Block,  that  is  worth  at  the  rate  of  two  hun- 
dred thousand  dollars  per  acre,  while  the  writer  has  an 
acre  six  miles  below  the  city,  quite  as  good  naturally,  and 
even  better  than  the  Overton  Block  acre,  because  it  will 
produce  more  corn,  cotton,  pumpkins,  peas,  potatoes,  cab- 
bage, etc.,  than  the  Overton  acre  will,  or  ever  would,  and 
my  acre  is  not  worth  one  hundred  dollars  per  acre.  Now 
why  is  it  that  the  Overton  acre  is  worth  two  hundred 
thousand  dollars  per  acre,  and  mine  not  worth  one  hun- 
dred dollars  ?  The  reason  is  that  there  is  employed  on  the 
Overton  acre,  profitably,  two,  three,  four,  or  five  hundred 
thousand  dollars  of  movable  property,  while  upon  mine 


VALUE  OP   LAND.  559 

there  is  employed  the  sixteenth  part  of  a  negro,  the  six- 
teenth part  of  a  mule,  plough,  hoe,  etc.  Xow,  if  you  will 
manage  in  any  way,  either  by  taxation  or  otherwise,  to 
drive  from  this  Overton  acre  the  two,  three,  four,  or  five 
hundred  thousand  dollars,  and  affect  the  Overton  acre  so 
that  this  capital,  or  any  part  of  it,  can  not  be  employed 
on  it  with  a  profit,  it  will  not  be  worth  more  than  my 
acre — in  fact,  not  so  much,  for  there  is  nothing  so  value- 
less as  ground  covered  with  houses,  when  there  is  no  de- 
mand for  said  houses.  And,  further,  if  you  do  anything 
to  make  the  two,  three,  four,  or  five  hundred  thousand 
dollars  pay  less  profit,  you  will  damage  the  ground,  or 
lessen  its  value,  more  rapidly  than  you  will  decrease  the 
profits — not  in  the  same  ratio,  but  more  rapidly.  Sup- 
pose, for  instance,  the  profit  has  been  ten  per  cent  net  on 
the  capital  employed,  and  the  property  is  paying  a  rental 
on  three  hundred  thousand  dollars ;  if  you  reduce  the 
profits  permanently,  in  any  way,  to  five  per  cent  net,  the 
property  would  not  pay  a  rental  on  one  hundred  and  fifty 
thousand;  in  fact,  it  would  hardly  pay  any  rent  at  all, 
for  five  per  cent  would  be  too  small  to  induce  a  business 
at  all  in  this  country." 

"  Movable  property  always  seeks  and  locates  on  im- 
movable property  where  it  thrives  and  multiplies  most 
rapidly.  A  spot  of  ground,  a  city,  a  county,  a  State,  or 
even  a  nation,  that  offers  the  greatest  thrift,  will  be  sought 
and  located  upon  by  the  greatest  quantity  of  it,  and  the 
greater  the  quantity  the  more  value  and  thrift  will  the 
land  have.  Any  tax  levied  upon  it  lessens  its  thrift,  and 
consequently  is  in  violation  of  the  correct  principle; 
though  it  may  not  be  enough  to  perceptibly  affect  it,  yet 
it  will  have  some  effect.  Though  it  may  not  drive  any 
away,  yet  it  will,  to  some  extent,  keep  other  movable  prop- 
erty from  coming." 

"  It  is  said  that  it  was  the  last  feather  that  broke  the 
camel's  back,  while  the  first  had  as  much  to  do  with  it 
as  the  last.  An  oppressive  tax,  such  as  exists  in  some 
parts  of  our  State,  drives  off  a  good  deal  of  movable  prop- 
erty, and  absolutely  forbids  any  more  coming  to  such 
parts,  unless  it  comes  relying  upon  dodging  or  evading 
the  law,  which  large  capital  never  does.  Men  of  small 
amounts  of  money,  goods,  etc.,  such  as  one  can  hide,  may 


560    THE  THEORY  AND   PRACTICE  OP  TAXATION. 

come ;  but  men  of  large  amounts  of  money,  to  go  into  open 
banking,  or  merchandising,  on  a  scale  that  can  not  be 
hidden,  or  evade  the  law,  will  not  come. 

"  Here  I  wish  to  state  a  truism  which,  perhaps,  many 
owners  of  real  estate  may  never  have  thought  of.  It  is 
this,  to  wit :  The  renter  or  lessee  of  real  estate  must  always 
prosper  before  the  owner  of  the  real  estate  can  expect  to 
prosper.  This  is  certainly  true  as  a  rule,  when  taken  for 
a  series  of  years,  in  a  country  like  ours,  where  land  is 
abundant,  and  the  people  free  to  go  where  they  please. 
This  will  apply  to  all  real  estate,  whether  farms,  store- 
houses, shops,  or  other  kinds  of  realty.  I  don't  mean  he 
must  have  greater  prosperity,  but  that  he  must  prosper 
first. 

"  Of  course,  all  mankind,  where  they  have  lived  for  a 
time,  form  local  and  social  ties,  and  will  submit  to  some 
oppression,  though  their  property  be  all  movable,  before 
they  get  their  consent  to  move  away ;  but  with  the  millions 
of  dollars  of  movable  property  we  desire  to  attract  to  us, 
no  such  ties  exist;  and  if  we  do  not  offer  quite  as  much 
thrift  as  other  localities,  and  even  more,  when  the  prop- 
erty may  be  already  located,  we  need  not  expect  to  attract 
it  to  us.  But  it  is  just  as  certain  as  that  the  law  of 
gravity  will  cause  the  apple  to  fall  toward  the  earth  when 
it  leaves  the  tree  instead  of  toward  the  sky;  or  as  that 
water  will  run  down  an  incline,  if  we  (in  Tennessee)  do 
offer  greater  attractions  than  other  localities  we  will  at- 
tract it  toward  us,  and  the  quantity  and  the  rapidity  with 
which  it  will  come,  can  and  will  be  measured  by  the 
amount  of  thrift  that  is  offered.  It  is  about  as  impor- 
tant to  induce  a  man,  with  a  given  amount  of  capital, 
to  come  to  us,  as  to  retain  one  we  already  have  in  our 
midst,  with  the  same  amount.  We  can  not  expect  to 
develop  a  State  or  build  up  large  cities  rapidly  from  their 
present  population  in  their  natural  increase,  but  must 
invite  others,  with  their  capital,  to  come  and  settle 
among  us. 

"  As  I  have  said,  any  tax  levied  upon  movable  property 
lessens  its  thrift,  and  tends  to  drive  and  keep  it  away; 
consequently,  it  is  incorrect  in  principle,  while  a  heavy 
and  oppressive  tax  is  absolutely  prohibitive  and  suicidal. 
Embraced  in  the  rule  I  have  presented  in  the  beginning. 


CITY  AND  COUNTRY.  561 

never  to  tax  anything  that  would  be  of  value  to  your 
State,  that  could  and  would  run  away,  or  that  could  and 
would  come  to  you,  are  two  or  three  kinds  of  movable 
property  which  I  regard  as  most  important,  and  which 
I  will  mention — to  wit,  money,  merchandise,  and  capital 
to  be  used  in  manufacturing.  These  pertain  to  cities 
mostly.  There  are  many  other  kinds  of  property  which, 
perhaps,  would  come  under  the  rule,  but  for  the  present 
I  will  speak  of  these  three,  because  through  them  great 
wealth  generally  enters  the  State. 

"  And  here  I  desire  to  call  your  attention  to  the  fact 
that  the  great  bulk  of  the  movable  property  generally  en- 
ters a  State  or  nation  through  its  cities  and  towns — money 
and  merchandise  or  trade  always,  and  capital  for  manu- 
facturing purposes  most  frequently ;  and  from  the  cities 
and  towns  its  beneficial  effect  is  radiated  throughout  the 
State  far  and  near,  greater  the  nearer  the  city,  but  bene- 
ficial, to  some  extent,  even  to  the  utmost  bounds  of  the 
State,  particularly  when  we  owe  a  common  debt,  as  most 
of  the  States  of  the  American  Union  do,  and  as  our  State 
of  Tennessee  certainly  does,  to  the  extent  of  over  twenty 
million  dollars.  And  here  I  wish  to  note  the  fact  that 
there  exists  in  Tennessee,  in  the  minds  of  some  of  our 
farmers,  or  people  living  in  the  country,  a  prejudice 
against  the  cities.  They  imagine  that  the  interest  or  pros- 
perity of  the  cities  is  entirely  separate  from  theirs,  if  not 
antagonistic;  and  again,  the  people  of  one  part  of  our 
State  imagine  their  interest  to  be  separate  from  other 
parts  of  the  State,  which  is  incorrect  in  toto.  This  idea 
or  feeling  has,  to  a  great  extent,  been  manufactured  by 
demagogues  or  ignorant  politicians,  and  by  newspapers 
actuated  by  incorrect  motives  or  ignorance  of  the  cor- 
rect relations  between  cities  and  country,  and  the  different 
parts  of  the  State.  This  is  all  wrong,  and  the  sooner  the 
people  turn  a  deaf  ear  to  all  such,  the  better  it  will  be  for 
all  parties.  There  is  no  antagonism  of  interest  between 
them ;  but,  on  the  contrary,  a  unity  of  interest.  For  a 
city  to  grow  large,  rich,  and  prosperous  within  the  borders 
of  a  State  that  owes  a  debt  to  be  paid  by  all  parts  of  the 
State  in  proportion  to  the  wealth  of  the  respective  parts, 
of  course  can  not  be  against  the  interest  of  any  part  of 
the  State  or  country;  and  vice  versa,  for  the  country  to 


562    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

become  rich  and  prosperous,  it  can  not  well  hurt  the  cities ; 
for  East  Tennessee  to  flourish,  can  not  hurt  Middle  and 
West  Tennessee,  and  so  on.  But,  on  the  contrary,  the 
prosperity  of  one  is,  and  must  be,  advantageous  to  the 
other,  not  only  so  far  as  paying  the  common  debt  is  con- 
cerned, but  in  divers  other  ways,  such  as  the  country 
patronizing  the  trade  and  manufactories  of  the  cities, 
etc.,  and  the  cities,  in  return,  buying  what  they  may  con- 
sume of  country  products  from  the  country,  and  offering 
a  near  and  convenient  market  for  many  of  their  products 
that  can  not  be  shipped  to  more  distant  markets,  besides 
shedding  or  radiating  an  increased  value  on  their  lands 
in  every  direction,  for  miles  and  miles.  To  attempt  to 
enumerate  the  various  reciprocal  advantages  is  useless, 
for  the  mind  once  directed  to  the  subject,  they  become 
apparent  by  the  scores. 

"  And  here  I  desire  to  call  the  attention  of  the  farmer 
or  countryman  to  a  fact  that  many  have  never  thought 
of,  which  may  tend  to  abate  their  hostility  toward  the 
cities.  It  is  this,  to  wit :  While  it  is  impossible  for  a  rich 
and  prosperous  farming  country  to  surround  a  city  with- 
out contributing  to  the  prosperity  of  said  city,  yet  it  is 
possible  for  a  city  to  be  located  within  the  borders  of  a 
State  and  grow  to  be  rich,  prosperous,  and  large,  and  to 
add  great  value  to  the  lands  around  and  to  the  State, 
without  receiving  a  corresponding  value  from  the  country 
of  said  State.  In  fact,  such  is  always  the  case  where  the 
city  is  large.  For  instance,  the  great  city  of  New  York 
is  not  indebted  to  the  country  or  farm  lands  of  New  York 
for  one  hundredth  of  her  prosperity  and  wealth.  She 
reaps  her  wealth  not  only  from  all  the  States  of  the  Union, 
but  from  all  the  civilized  parts  of  the  world ;  yet  she  don't 
contribute  a  dollar  to  the  payment  of  current  expenses 
and  State  debt  of  any  State  in  the  Union,  or  any  part 
of  the  world,  except  the  State  of  New  York.  She  gives 
in  her  immense  wealth  to  be  taxed  solely  for  the  State 
of  New  York,  thereby  relieving  each  and  every  farmer  in 
the  State.  St.  Louis  reaps  a  majoritv  of  her  prosperity 
from  other  States  than  Missouri.  New  Orleans  reaps 
four  fifths  of  her  prosperity  from  other  States  than 
Louisiana,  and  of  Memphis  it  can  be  said,  she  has  reaped 
of  whatever  wealth  and  prosperity  she  has,  from  a  half 


OPPRESSIVE  TAXATION  OF  MONEY. 


563 


to  two  thirds  of  it  from  Arkansas,  Mississippi,  southern 
Missouri,  and  southern  Kentucky;  yet  she  does  not  con- 
tribute a  dollar  directly  to  the  payment  of  current  ex- 
penses or  State  debt  of  any  of  these  States,  but  it  is  all 
taxed  to  supply  the  wants  of  the  State  of  Tennessee  alone. 
JSTashville  is  similarly  situated,  to  some  extent,  and  per- 
haps Knoxville  and  Chattanooga,  just  to  the  extent  that 
they  may  have  prosperous  trade  beyond  the  State.  Hence 
it  will  be  seen  that  the  farmers  or  country  people  should 
not  be  prejudiced  against  the  cities  located  within  their 
State,  for  they  receive  more  aid  from  them  than  they  give 
in  return,  and  are  consequently  the  gainers.  So  the  prac- 
tical operation  of  large  cities  seems  to  be  to  receive  trade, 
and  become  rich  out  of  it,  from  other  States  more  than 
their  own,  and  allow  their  own  State  alone  to  receive  the 
full  benefit,  as  far  as  her  demands  go.  This,  it  strikes 
me,  should  not  be  objectionable  to  the  farmer  or  country- 
man, or  to  the  State  or  any  part  of  the  State.  Conse- 
quently, by  no  means  should  they  desire  any  law,  of  any 
kind,  to  exist  in  the  land,  whereby  the  cities  are  oppressed 
and  kept  from  growing,  when,  by  its  repeal  or  modifica- 
tion, they  would  not  be  harmed  a  particle,  but,  on  the  con- 
trary, be  benefited. 

"  To  undertake  to  enforce  a  very  oppressive  tax  on 
money  is  ridiculous  nonsense.  It  is  impossible.  Th^ 
Maker  of  all  things  has  forbidden  it,  in  giving  to  all 
things  their  peculiar  nature.  He  has  forbidden  an  op- 
pressive tax  on  money,  by  giving  it  such  an  easy  mobilityi' 
that  it  can  go,  in  a  fortnight,  from  Tennessee  almost  tqi 
th^ uttermost  parts  of  the  world.  And  just  so,  to"some 
extent,  with  other  kinds  of  movable  property.  It  would 
be  about  as  wise  for  the  Legislature  to  pass  a  law  enacting 
that,  from  and  after  this  date,  the  great  bulk  of  the  water 
of  the  Mississippi  Eiver  shall  flow  toward  Cairo  instead 
of  toward  New  Orleans,  as  to  enact  that  the  great  bulk 
of  the  money  of  Memphis  shall  pay  four  and  a  half  per 
cent  tax  per  annum.  It  is  wise  in  man  to  deal  with 
things  as  they  are,  and  will  be  in  spite  of  him,  and  not 
as  he  may  think  they  should  be.  Don't  kick  against  the 
pricks ! 

"  Suppose  that  some  city  or  town  found  it  necessary, 
in  order  to  pay  current  expenses,  interest  on  debts,  etc., 


r 


564    THE   THEORY  AND   PRACTICE   OF  TAXATION. 

to  levy  a  tax  of  ten  or  fifteen  per  cent  on  all  kinds  of 
property,  real,  personal,  and  mixed,  and  that  it  was  rigidly 
enforced.  Does  any  one  suppose  that  there  would  be  any 
movable  property  there  in  twelve  months  to  collect  the 
tax  from?  jSTo,  sir;  you  would  hardly  be  able  to  find  a 
pocket  handkerchief  or  a  pound  of  coffee  in  either  of  these 
cities.  But  all  the  real  estate,  houses,  etc.,  would  be  there 
still,  but  without  tenants,  and  consequently,  on  account 
of  the  high  tax  and  want  of  occupants,  worth  nothing. 
Suppose,  again,  it  was  possible  to  adopt  a  process  to  make 
the  real  estate  worth  something,  could  it  be  done  by  run- 
ning the  occupants  off  and  receiving  no  rent  whatever 
from  it  ?  N"o ;  it  could  only  be  done  by  adopting  a  process 
which  would  fill  all  of  your  houses  with  tenants,  and 
secure  to  you  a,  rental  from  them ;  and  that  could  only  be 
done  by  allowing  movable  property  to  thrive,  and  by  at- 
tracting a  sufficient  amount  of  it  to  you  to  occupy  addi- 
tional ground,  and  to  pay  additional  rental  until  your 
rental  would  be  more  than  the  tax. 

"  I  find,  in  submitting  my  views  to  intelligent  men, 
that  at  first  they  oppose  me,  and  invariably  say  it  is  right 
and  just  for  all  kinds  of  property  to  be  taxed  alike;  they 
all  receive  protection  from  the  laws  alike,  and  of  course 
they  ought  to  pay  alike.  ISTow,  this  would  do  very  well, 
and  be  good  reasoning,  if  we  had  a  Chinese  wall  around  a 
State;  a  wall  that  man  could  not  scale  to  go  out  or  come 
in,  and  no  railroad  could  go  under,  through,  or  over; 
and  then  I  would  favour  the  tax  of  everything,  for  then 
it  would  all  be  fixed  property;  it  couldn't  run  away  or 
come  to  you ;  but  until  that  kind  of  arrangement  is  made 
I  am  not  in  favour  of  it." 

Commenting  on  a  rate  of  tax  of  three  per  cent  imposed 
on  all  property  by  various  cities  of  the  Southern  States 
(at  the  time  of  his  writing,  1873),  Mr.  Ensley  points  out 
as  one  result  of  such  a  policy  that  it  offered  "  inducements 
to  banks  to  carry  on  business  with  small  capitals,  and 
rely  upon  deposits  for  their  capital ;  in  other  words,  to 
undertake  to  do  banking  business  without  capital.  A 
bank  with  five  hundred  thousand  dollars  capital  pays  fif- 
teen thousand  dollars  to  State,  county,  and  city,  being 
five  times  as  much  as  a  bank  with  one  hundred  thousand 
dollars  capital,  when  the  bank  with  five  hundred  thou- 


EFFECTS  OP  UNEQUAL  TAXATION.      565 

sand  dollars  capital  does  the  State,  county,  and  city,  other- 
wise, five  times  as  much  good  in  the  shape  of  assisting 
trade,  manufactures,  and  developing  the  various  indus- 
tries." 

Commenting  also  upon  the  tax  rate  of  four  and  a  half 
per  cent  imposed  at  that  time  in  the  city  of  Memphis, 
Mr.  Ensley  further  adds :  "  If  you  will  levy,  enforce,  and 
collect  such  a  tax  on  the  money,  trade,  etc.,  of  the  great 
city  of  New  York,  and  charge  no  tax  in  Boston,  Philadel- 
phia, or  Baltimore,  I  will  guarantee  to  transfer,  in  a  short 
time,  hundreds  of  millions  of  the  trade,  money,  etc.,  of 
N^ew  York  to  those  cities ;  and,  if  she  will  continue  it  five 
or  ten  years,  I  will  guarantee  to  show  you,  in  either  of 
these  cities,  more  trade,  more  money,  and  more  people 
than  in  New  York.  I  will  guarantee  to  depopulate  her 
more  effectually  and  more  permanently  than  a  plague 
ever  did  a  city,  and  impoverish  her  more  effectually  than 
ever  a  war  did.  Yes,  I  will  hurt  her  infinitely  worse 
than  a  fire,  that  might  burn  every  house  from  Castle 
Garden,  from  river  to  river,  to  Central  Park.  I  will  make 
it  entirely  safe  for  women  and  children  to  cross  Broadway 
at  City  Park,  Astor  House,  Wall  Street,  or  elsewhere,  with- 
out the  protection  of  policemen.  I  will  reduce  the  value 
of  the  real  estate  of  Mr.  Astor  from  one  hundred  million 
dollars  (it  is  said  to  be  worth  one  hundred  million  dollars) 
to  twenty-five  million  dollars  or  ten  million  dollars,  and 
perhaps  even  less,  and  the  estate  of  every  real-estate  or 
immovable-property  holder  in  the  same  ratio ;  but  I  can 
not  say  that  I  will  greatly  injure  the  movable-property 
man,  for  he  may  go  to  Boston,  Philadelphia,  or  Baltimore, 
and  do  quite  as  well  as  he  did  in  New  York  city  with  his 
money,  goods,  etc.  The  truth  is,  it  would  entirely  bank- 
rupt the  great  city,  for  the  demand  for  immovable  property 
would  not  be  sufficient  to  pay  a  rental  sufficient  to  pay 
the  interest  on  her  city,  county,  and  State  debt.  I  do 
not  think  these  assertions  on  the  extreme,  or  the  pic- 
ture overdrawn.  And  if  the  picture  is  not  overdrawn, 
and  even  say  it  is  overdrawn  by  fifty  per  cent,  who  would 
be  the  injured  party  in  New  York  by  the  enforcement 
of  such  a  law?  Would  it  be  the  great  merchants  who, 
for  aught  I  know,  rent  their  houses  from  Mr.  Astor? 
Or  would  it  be  Mr.  Astor,  the  great  real-estate  owner  of 


566    THE  THEORY  AND   PRACTICE  OF  TAXATION. 

New  York  ?  In  other  words,  would  it  be  the  movable-prop- 
erty man,  with  his  goods,  money,  etc.,  who  can  take  it  and 
go  to  Boston,  Philadelphia,  or  elsewhere,  and  perhaps  do 
quite  as  good  a  business  as  he  did  in  JSTew  York,  or  would 
it  be  the  immovable-property  or  real-estate  man,  who  has 
to  stay  where  he  is  and  pay  his  city  and  county  debt,  with- 
out tenants  or  rental  from  his  property?  Hence,  I  say 
that,  of  all  the  men  who  should  object  to  oppressive  and, 
to  follow  the  principle,  I  will  say  any  taxation  at  all  on 
money,  merchandise,  or  trade,  manufactories,  etc.,  it  is 
the  man  who  owns  the  real  estate  or  immovable  property. 
His  position  should  be  this :  He  should  say  to  the  thou- 
sands of  men  in  the  civilized  world,  with  their  money  in 
their  pockets,  looking  out  a  favourable  locality  to  go  to 
banking,  merchandising,  manufacturing,  or  farming,  etc. : 
'  Come,  locate  on  me ;  I  will  not  oppress  you ;  come  to  me, 
for  I  can't  go  to  you,  and  we  must  come  together,  or  I 
am  worth  nothing;  and  knowing  this,  I  will  not  tax  you 
and  oppress  you.  Other  localities  make  you  pay  a  tax; 
I  will  not,  consequently  I  offer  that  advantage  over  other 
localities.'  Heretofore  it  has  been  the  merchant  who  has 
done  the  complaining  about  the  tax  levied  on  him;  he  is 
not  the  one  to  do  it;  it  is  the  real-estate  man,  and  the 
writer  being  one  of  those  men  owning  real  estate  almost 
entirely,  and  not  owning  a  dollar's  worth  of  merchandise 
of  any  kind  for  sale,  and  not  being  a  lender  of  money,  but, 
on  the  contrary,  a  borrower,  and  not  being  a  manufacturer 
of  any  kind,  and  not  being  the  owner  of  machinery,  except 
a  steam  sawmill  and  a  steam  cotton-gin  establishment, 
but  being  what  is  known  as  a  plain  farmer  or  planter  by 
profession  or  occupation,  thinking  he  sees  hisinteres,t 
in  the  system  he  is  advocfitmg7"cbnsequent!y  jtheremis 
to  be'Touhd  the  moving  cause  of  this  letter. 

"  Fcontend  that  this  system  will  lig*hten  the  burdens  of 
taxation  on  real  estate,  and,  after  a  very  short  time,  the 
rate  of  taxation  will  really  be  less.  To  illustrate  further, 
I  will  say  what  I  said  to  a  prominent  real-estate  owner  in 
a  conversation  on  this  subject.  He  said  to  me:  Do  you 
say  that  such  merchants  or  bankers  shall  make  from  ten 
to  sixteen  per  cent  on  their  capital,  and  pay  no  tax,  and 
I  make  only  six  or  eight  per  cent  on  the  houses  they  are 
occupying,  and  pay  all  the  tax?     Yes,  says  I.     You  seek 


FREEDOM  FROM  TAX  BURDENS.       567 

to  tax  them,  and  that  is  the  reason  you  get  no  larger  per 
cent  on  your  property.  Says  I :  If  they  make  one  hundred 
per  cent  per  annum  on  their  capital,  you  should  not  want 
them  to  pay  a  copper  of  tax.  Why?  Because  if  they 
made  one  hundred  per  cent  per  annum,  next  year  you 
would  have  forty  applicants  for  the  house  they  are  doing 
business  in,  and  if  you  should,  you  would  certainly  get 
a  full  rent  for  it,  more  than  the  extra  tax,  and  as  only  one 
of  the  forty  could  get  the  house,  and  the  other  thirty-nine 
would  be  unaccommodated,  and  if  your  tenants  should 
be  making  this  large  per  cent,  it  is  reasonable  to  presume 
that  they  would  be  making  it,  or  something  near  it,  all 
over  town;  consequently  there  would  be  near  the  same 
number  of  applicants  for  every  house  in  town ;  but  as  only 
the  present  tenants  or  their  number  could  be  accommo- 
dated with  houses,  the  result  would  be  that  you  would 
not  only  get  exorbitant  rents  for  all  the  houses  in  town, 
but  you  would  have  demand  for  the  hundreds  and  thou- 
sands of  vacant  lots  throughout  the  city  to  build  store- 
houses on;  they  would  either  buy  them  or  offer  you  such 
enormous  rents  as  would  induce  you  to  build  them  houses 
on  lots  that  you  have  been  paying  taxes  on  for  years,  and 
received  no  rental  from.  Soon  there  would  be  houses 
going  up  all  over  the  city,  block  after  block.  The  brick- 
maker  would  have  more  than  he  could  do ;  the  lumberman 
would  have  more  orders  than  he  could  fill;  the  carpenter, 
bricklayer,  stone  mason,  foundryman,  and  all  descriptions 
of  mechanics  and  labourers  would  have  more  than  they 
could  do,  so  that  the  builders  would  have  to  send  else- 
where for  mechanics,  and  they  would  come  in  by  the  thou- 
sands. All  these  newcomers  in  turn  would  want  residences 
for  their  families ;  and  thus  would  bring  into  demand  and 
make  pay  a  rental  thousands  of  lots  that  have  never  paid 
anything,  and  you  give  active  employment  to  all  the  me- 
chanics you  have,  and  besides  bring  thousands  of  others 
from  other  places. 

"  Let  us  go  a  little  further,  and  see  how  it  affects  all 
and  everybody  in  the  city.  These  newcomers  get  their 
houses,  and  then  they  want  furniture,  and  they  patronize 
your  furniture  man;  they  want  a  carriage  or  wagon  for 
family  uses,  and  they  patronize  your  carriage  man;  and 
then  horses,  and  patronize  the  horsemen;  and  then  the 


568    THE  THEORY  AND   PRACTICE  OP  TAXATION. 


1 


^J 


blacksmith  to  shoe  them;  and  then  the  retail  drygoods 
houses,  mantuamakers,  milliners,  grocery-men,  butchers, 
vegetable  market  men,  and,  in  short,  every  kind  of  retail 
establishment  throughout  the  city,  thereby  giving  vigour, 
life,  and  thrift  to  all ;  and  thus  it  would  go  on  until,  before 
you  would  be  aware  of  it,  you  would  have  a  city  of  hun- 
dreds of  thousands  of  people,  and  be  worth  and  pay  a 
rental  on  hundreds  of  millions  of  dollars.  Of  course,  no 
general  trade  would  pay  one  hundred  per  cent  per  annum, 
but  I  have  adopted  this  rate  to  illustrate  the  principle. 

"  The  system  of  non-taxation  of  certain  kinds  of  mov- 
able property,  which  I  am  advocating  as  the  correct  sys- 
tem, while  it  is  the  best  to  be  adopted  in  every  State,  yet 
it  will  not  make  a  rich  State  out  of  every  State,  nor  will 
it  build  up  every  town  to  be  a  large  city,  by  any  means. 
Thus,  for  instance,  its  application  to  a  naturally  poor 
State  could  not  induce  movable  property  sufficient  to  go 
there  to  make  it  a  very  rich  State;  still,  if  there  is  any 
way  possible  to  develop  such  a  State,  this  is  the  one. 

"  I  think  1  have  shown  beyond  question  that  it  is  not 
in  harmony  with  the  interests  of  any  one  in  any  State  to 
tax  money,  trade,  manufactures,  etc.,  and  that,  of  all 
others,  the  o'Rmers  of  fixed  or  immovable  property  should 
demand  that  the  present  system  be  changed — that  they 
should  say :  Don't  adopt  any  system  that  has  a  tendency 
to  drive  movable  property  from  me;  but,  on  the  contrary, 
adopt  a  system  that  will  attract  it — for  we  are  worth  noth- 
ing without  it,  and  the  movable-property  man  may  go  else- 
where and  do  quite  as  well." 


CHAPTER  XXVI. 

THE    LAW    OF    THE    DIFFUSION    OF    TAXES. 

Xo  attempt  ought  to  be  made  to  construct  or  formu- 
late an  ecouomically  correct,  equitable,  and  efficient  system 
of  tajiation  which  does  not  give  full  consideration  to  the 
method  or  extent  to  which  taxes  diffuse  themselves  after 
their  first  incidence.  On  this  subject  there  is  a  great  differ- 
ence of  opinion,  which  has  occasioned,  for  more  than  a  cen- 
tury, a  vast  and  never-ending  discussion  on  the  part  of  eco- 
nomic writers.  All  of  this  discussion,  however,  has  result- 
ed in  no  generally  accepted  practical  conclusions;  has  been 
truthfully  characterized  by  a  leading  French  economist 
(M.  Parieu)  as  marked  in  no  small  part  by  the  "  simplicity 
of  ignorance,"  and  from  a  somewhat  complete  review  (re- 
cently published  *)  of  the  conflicting  theories  advanced  by 
participants  one  rises  with  a  feeling  of  weariness  and 
disgust. 

The  majority  of  economists,  legislators,  and  the  public 
generally  incline  to  the  opinion  that  taxes  mainly  rest 
where  they  are  laid,  and  are  not  shifted  or  diffused  to  an 
extent  that  requires  any  recognition  in  the  enactment  of 
statutes  for  their  assessment.  Thus,  a  tax  commission  of 
Massachusetts,  as  the  result  of  their  investigations,  ar- 
rived at  the  conclusion  that  "  the  tendency  of  taxes  is  that 
they  must  be  paid  by  the  actual  persons  on  whom  they  are 
levied."  But  a  little  thought  must,  however,  make  clear 
that  unless  the  advancement  of  taxes  and  their  final  and 
actual  payment  are  one  and  the  same  thing,  the  Massa- 
chusetts statement  is  simply  an  evasion  of  the  main  ques- 
tion at  issue,  and  that  its  authors  had  no  intelligent  con- 
ception of  it.     A  better  proposition,  and  one  that  may 

*  On  the  Shifting  and  Incidence  of  Taxation,  by  Pi'of.  Edwin 
E.  Seligman,  1892. 

37  569 


r-^ 


J57O    THE  THEORY  AND   PRACTICE  OF  TAXATION, 

,even  be  regarded  as  an  economic  axiom,  is  that,  regard- 
ing taxation  as  a  synonym  for  ^  force,  as  it  really  is,  it 
jjfollows  the  natural  and  invariable  law  of  all  forces,  and 
distributes  itself  in  the  line  of /)east  resistance.     It  is  also 
^valuable  as  indicating  the  line  of  inquiry  most  likely  to 
13  ^olead  to  exact  and  practical  conclusions.     But  beyond  this 
^.  ^t  lacks  value,  inasmuch  as  it  fails  to  embody  any  sugges- 

J=Ktions  as  to  the  best  method  of  making  the  involved  prin- 
Tciple  a  basis  for  any  general  system  for  correct  taxation; 
vjinasmuch  as  "  the  line  of  least  resistance  "  is  not  a  posi- 
'  '^tive  factor,  and  may  be  and  often  is  so  arranged  as  to 
J  ^make  levies  on  the  part  of  the  State  under  the  name  of 
-=^  3^^^^tio^  subservient  to  private  rather  than  public  inter- 
*.  i»^sts.  Under  such  circumstances  the  question  naturally 
i'ses,  What  is  the  best  method  for  determining,  at  least, 
^he  approximate  truth  in  respect  to  this  vexed  subject? 
manifestly  correct  answer  would  be:  first,  to  avoid  at 
jthe  outset  all  theoretic  assumptions  as  a  basis  for  reason- 
£5  jingj  second,  to  obtain  and  marshal  all  the  facts  and  con- 
ditions incident  to  the  inquiry  or  deducible  from  experi- 
^ence;  third,  recognise  the  interdependence  of  all  such  facts 
[and  conclusions;  fourth,  be  practical  in  the  highest  degree 
[XB.  accepting  things  as  they  are,  and  dealing  with  them 
■H>  "^as  they  are  found ;  and  on  such  a  basis  attention  is  next 
■J -p^ asked  to  the  following  line  of  investigations. 
-^  It  is  essential  at  the  outset  to  correct  reasoning  that 

the  distinction  -between  taxation  an^/j^oUalid^  be  kept 
clearly  in  view.  That  ohly-is-^itTtTMto  be  called  a  tax 
law  which  levies  uniformly  upon  all  the  subjects  of  taxa- 
tion ;  which  does  not  of  itself  exempt  any  part  of  the  prop- 
erty of  the  same  class  which  is  selected  to  bear  the  primary 
burden  of  taxation,  or  by  its  imperfections  to  any  extent 
permits  such  exemptions.  All  levies  or  assessments  made 
by  the  State  on  the  persons,  property,  or  business  of  its 
citizens  that  do  not  conform  to  such  conditions  are  spolia- 
tions, concerning  which  nothing  but  irregularity  can  be 
predicated ;  nothing  positive  concerning  their  diffusion  can 
be  asserted ;  and  the  most  complete  collection  of  experi- 
ences in  respect  to  them  can  not  be  properly  dignified  as 
"  a  science."  And  it  may  be  properly  claimed  that  from 
a  non-recognition  or  lack  of  appreciation  of  the  broad  dis- 
tinction between  taxation  and  spoliation,  the  disagree- 


A 


NUMBER  OF  TAXPAYERS.  571 

ment  among  economists  respecting  the  diffusion  of  taxes 
has  mainly  originated. 

With  this  premise,  let  us  next  consider  what  facts  and 
experiences  are  pertinent  to  this  subject,  and  available  to 
assist  in  reaching  sound  conclusions ;  proceeding  very  care- 
fully and  cautiously  in  so  doing,  inasmuch  as  territory 
is  to  be  entered  upon  that  has  not  been  generally  or  thor- 
oughly explored. 

The  facts  and  experiences  of  first  importance  in  such 
/inquiry  are  that  the  examination  of  the  tax  rolls  in  any 
State,  city,  or  municipality  of  the  United  States  will  show 
that  surprisingly  small  numbers  of  persons  primarily  pay 
or  advance  any  kind  of  taxes.  It  is  not  probable  that  more 
than  one  tenth  of  the  adult  population  or  about  one  twen- 
tieth of  the  entire  population  of  the  United  States  ever 
come  in  contact  officially  with  a  tax  assessor  or  tax  col- 
lector. It  is  also  estimated  that  less  than  two  per  cent  (^^ 
of  the  total  population  of  the  United  States  advance  the  ^ 
entire  customs  and  internal  revenue  of  the  Federal  Govern- 
ment. 

In  the  investigations  made  in  1871,  by  a  commission 
created  by  the  Legislature  of  the  State  of  New  York  to 
revise  its  laws  relative  to  the  assessment  and  collection  of 
taxes,  it  was  found  that  in  the  city  of  New  York,  out  of 
a  population  of  over  one  million  in  the  above  year,  only 
8,920  names,  or  less  than  one  per  cent  of  this  great  multi- 
tude of  people,  had  "  any  household  furniture,  money, 
goods,  chattels,  debts  due  from  solvent  debtors,  whether 
on  account  of  contract,  note,  bond,  or  mortgage,  or  any 
public  stocks,  or  stocks  in  moneyed  corporations,  or  in 
general  any  personal  property  of  which  the  assessors  could 
take  cognizance  for  taxation  " ;  and  further,  that  not  over 
four  per  cent,  or,  say,  forty  thousand  persons  out  of  the 
million,  were  subject  to  any  primary  tax  in  respect  to  the 
ownership  of  any  property  whatever,  real  or  personal; 
while  only  a  few  years  subsequent,  or  in  1875,  the  regular 
tax  commissioners  of  New  York  estimated  that  of  the 
property  defined  and  described  by  the  laws  of  the  State 
as  personal  property,  an  amount  approximating  two  thou- 
sand million  dollars  in  value  was  held  in  New  York  city 
alone.  Later  investigations  show  that  this  state  of  things 
has  continued.      Thus,  in  1895,  out  of  a  population  of 


572    THE  THEORY  AND  PRACTICE  OF  TAXATION. 


about  two  million,  it  was  estimated  that  only  seventy-nine 
thousand,  or  not  over  four  per  cent  of  the  inhabitants  of 
the  city,  were  subject  to  primary  taxation,  and  that  one 
half  the  whole  amount  collected  in  that  year  was  paid 
by  less  than  a  thousand  persons.  In  the  city  of  Boston, 
where  the  tax  laws  are  executed  in  the  most  arbitrary  man- 
ner, the  ratio  of  population  directly  assessed  is  somewhat 
greater,  but  aside  from  the  poll  tax,  which  is  a  per  capita 
and  not  a  property  tax,  only  7.27  per  cent  of  residents 
paid  a  property  tax  in  1895  out  of  a  population  of  -494:,20o. 
In  one  of  the  smaller  cities  of  Massachusetts,  where  per- 
sons and  property  are  capable  of  more  thorough  super- 
vision than  larger  numbers  and  areas — namely,  the  city 
of  vSpringfield,  with  a  population  of  about  fifty  thousand 
— the  report  of  its  tax  officials  shows  that  for  the  year 
189-i-'95  the  number  of  persons  and  corporations  assessed 
on  property  (mainly  real  estate)  was  7,745,  or  one  for 
every  6.4  of  its  citizens,  while  10,560  other  citizens  were 
assessed  for  a  poll  tax  of  two  dollars  only.  Of  the  total 
amount  of  taxes  assessed — namely,  $735,948 — the  above 
number,  10,560,  paid  only  $21,120;  and  this  is  the  experi- 
ence generally  throughout  the  United  States,  as  it  will  be 
in  every  country  under  a  free  popular  government,  where 
arbitrary  inquisitions  and  arrests  of  persons  and  seiz- 
ures of  property  are  not  allowed,  and  where  a  soldier 
does  not  practically  stand  behind  every  tax  assessor  and 
collector. 

The  time  (1871)  when  the  personal  investigations 
above  referred  to  were  made  was  when  the  masses  of  the 
city  of  Xew  York  were  moved  with  indignation  at  the  mis- 
use and  private  appropriation  by  a  few  officials  (Tweed 
and  his  associates)  of  the  municipal  revenues  raised  by 
taxation,  under  cover  of  instituting  public  improvements, 
and  which  finally  led  to  their  prosecution,  imprisonment, 
or  self-imposed  exile;  and  the  questions  which  naturally 
suggested  themselves  were:  If  only  some  forty  thousand 
^'of  the  million  in  Xew  York  citv  paid  the  taxes,  what  in- 
terest had  the  other  nine  hundred  and  sixty  thousand  who 
never  saw  the  face  of  a  tax  assessor  or  collector  in  oppos- 
ing corruption?  "What,  in  an  honest  administration  of 
\  the  city  government  and  in  a  reduction  of  taxes?  Must 
'  it  not  be  for  the  interest  of  the  many  that  the  expenditures 


PUBLIC  INTEREST  IN   TAXES. 


5Y3 


of  the  State  shall  always  be  as  large  as  possible?  Must  I 
they  not  be  benefited  by  exorbitant  taxes  on  the  owners 
of  property,  and  a  distribution  of  the  money  collected,  even 
if  stolen  by  corruptionists,  but  spent  by  them  lavishly  on 
enterprises '  that  will  furnish  new  opportunities  for  em- 
ployment or  amusement  for  the  masses?  Clearly,  so  far 
as  any  personal  experience  growing  out  of  any  direct  assess- 
ment and  levy  was  concerned,  ninety-six  per  cent  of  the 
population  of  the  city  had  no  more  cause  of  personal  griev- 
ance by  reason  of  the  unlawful  taking  of  money  from  the 
city  treasury  than  they  would  have  had  at  the  taking  of  an  j 
equivalent  amount  from  the  municipal-  treasuries  of  Lon-  / 
don,  Paris,  or  any  other  city. 

The  answer  to  these  questions  is  to  be  found  in  the 
fact,  as  John  Adams  once  remarked,  that  "  if  the  Creator 
has  given  man  a  reason  that  is  fallible,  he  has  also  im- 
pressed upon  him  an  instinct  that  is  sure."     And  this  in-i^ 
stinct  teaches  the  masses   everywhere,  though  they  have  \—^S 
never  read  a  book  on  political  economy,  or  heard  any  one  i  ^    f 
discourse  learnedly  on  the  principles  of  taxation,  that  if  '  jf^ 
taxes  are  increased,  either  by  a  lawful  or  unlawful  expendi-     ^'^ 
ture  of  public  money,  they  can  not  in  any  possible  way  ■  '"^^ 
avoid  paying  some  portion  of  its  increase;  or,  in  other  ! 
words,  that  increased  taxes  mean  increased  cost  of  living,  j 
through   increased   rents,   increased   price  of   fuel,   cloth-  ' 
ing,  and  provisions;  and,  possibly,  diminished  opportunity- 
to  labour,  through  such  increased  cost  of  the  products  of 
labour  as  would  limit  and  restrict  markets  or  consump-^ 
tion.      In   short,   that   taxes    inevitably   fall   upon   thei 
through  the  increased  price  of  all  they  consume,  even  if 
they  pay  nothing  to  the  tax  collector  directly.     A  large 
proportion   of  the  masses   of  the  city  of  New  York  in 
1871-'72,   who   paid   no   taxes   directly,   accordingly   and 
spontaneously  joined  hands  with  the  comparatively  few 
of  their  fellow-citizens  who  did  pay  in  resisting  extrava- 
gance and  corruption.* 


I 


*  The  assertion  would  not  be  warranted  that  the  masses  of 
New  York  were  wholly  unanimous  in  condemninsr  Tweed,  for  a 
portion  of  them  were  undoubtedly  well  content  with  the  situation. 
He  had  curried  favour  with  the  very  poor  and  ignorant  by  dis 
tributing  coal  and  flour,  and  making  ostentatious  presents  of 
money ;  and  these  "  charities  "  are  remembered  to  this  day  in  th< 


H 


574 


D 


THE  THEORY  AND   PRACTICE  OP  TAXATION. 


We  are  thus  led  up  and  forced  to  the  recognition  of  two 
propositions,  or  rather  principles,  in  respect  to  taxation 
that  can  not  be  invalidated.  The  first  is,  that  it  is  not 
necessary  that  a  tax  assessor  or  collector  should  personally 
assess  and  levy  upon  every  citizen  of  a  State  or  community 
in  order  that  all  should  be  compelled  to  contribute  of  his 
roperty  for  the  support  of  such  State  or  community; 
second,  that  there  is  an  inexorable  law  by  which  every  man 
must  bear  a  portion  of  the  burden  of  public  expenditures, 
even  though.' the  official  assessors  take  no  direct  cognizance 
of  him  whatever. 

The  following  incident  may  here  be  cited  as  instructive : 
In  one  of  the  recent  official  hearings  before  a  legislative 

i  committee  of  one  of  the  States,  a  strenuous  advocate  of 
the  popular  doctrine  that  there  was  and  could  be  no  such 
thing  as  equality  in  taxation  except  by  rigidly  taxing  every- 
^body  directly  for  all  his  property,  of  every  description, 
both  real  and  personal,  and  that  to  not  tax  immediately 
^  and  directly  was,  in  at  least  a  great  degree,  to  exempt 
.^  from  taxation,  expressed  himself  as  entirely  opposed  to 
^  any  system  of  restricting  assessments  to  a  comparatively 
^  few  things,  on  the  ground  that  it  would  be  a  recognition 
in  the  United  States  of  a  system  which  in  Great  Britain 
had  ground  down  the  masses  into  poverty.  He,  however, 
obtained  some  new  light  on  the  subject  of  non-diffusion 
by  being  reminded  that  if  the  masses  of  England  had  been 
grievously  oppressed  by  taxation,  it  had  been  under  a 
system  of  many  years'  standing,  which  never  in  any  way 
brings  the  tax  collector  in  direct  contact  with  nineteen 
»  twentieths  of  the  entire  population ;  the  customs  taxes  of 
4^ Great  Britain  being  practically  levied  on  only  four  arti- 
^^les — spirits,  tea,  coffee,  and  tobacco ;  and  the  inland  reve- 
"*»  nue  also  on  practically  four — spirits,  beer,  legacies  and 
^  successions,  and  stamps  (on  deeds,  insurance  policies,  bills 
■^  ^  exchange,  receipts,  drafts,  etc.).  Generalizing,  then, 
on  the  basis  of  so  broad  a  fact,  how  illogical  and  unsci- 
entific was  the  assumption  that  whatever  persons,  prop- 
erty, or  business  are  not  taxed  directly  are  exempt  from 

^Doorer  parts  of  New  York  city,  and  Tweed  is  esteemed  by  many 
v'as  the  victim  of  injustice,  and  a  man  who  suffered  because  he  was 
>the  friend  of  the  people. 


■■■$ 


DIFFUSION  OF  CUSTOMS  DUTIES.  575 

taxation ! — and  yet  the  practical  exemplification  of  such 
a  system,  in  the  case  of  England,  was  a  most  efficient  in- 
strumentality for  grinding  the  masses  of  her  people  down 
to  poverty. 

On  the  other  hand,  to  generalize  from  the  experience 
of  an  individual  or  a  class  in  place  of  that  of  a  nation 
or  community,  let  us  take  the  case  of  a  person  who  passes 
all  the  year  m  transitu — moving  backward  and  forward, 
for  example,  in  a  boat  on  the  line  of  the  Erie  Canal,  or 
between  the  head  waters  of  the  Mississippi  and  its  mouth ; 
a  citizen  of  no  one  State,  a  resident  in  no  one  town,  and 
buying  all  that  he  eats,  drinks,  and  wears  wherever  he 
can  buy  cheapest.  Does  this  man  escape  taxation  because 
he  has  no  permanent  situs  (residence  as  a  citizen),  and 
is  unknown  by  any  assessor?  If  he  does,  then  his  occupa- 
tion is  more  profitable  to  the  extent  of  the  taxes  he  avoids 
than  is  that  of  the  individual  who,  following  analogous 
occupations,  resides  permanently  in  one  location,  and  pays 
taxes  regularly;  or  else  some  notable,  easily  discernible 
cause,  as  undue  competition  to  obtain  situations,  will 
account  for  his  exemption. 

Let  us  next  consider  how  practical  experience  definitely 
indicates  the  line  of  least  resistance,  in  conformity  with 
which  those  contributions   of  property  or  service  which 
the  State  requires  its  citizens  to  make  for  its  support,  and     ,       ^j 
are  worthy  of  designation   as   taxes,   diffuse  themselves.     ?■     ^^ 
Let  us  take  first  that  form  of  indirect  taxation  which  is     ^    \ 
known  as  customs,  or  taxes  on  imports,  one  from  which 
the  Federal  Government  of  the  United  States  has  derived 
in  recent  years  more  than  half  of  its  revenue,  and  Great     ^-^   ^ 
Britain  more  than  one  fourth  of  its  total  receipts  from  ^ 

all  forms  of  imperial  taxes.  That  all  such  taxes  as  a  rule 
diffuse  themselves,  and  ultimately  fall  upon  and  are  paid 
by  final  consumers,  is  capable  of  demonstration  by  a  great 
variety  of  evidence.  Every  remission  of  customs  duties  on 
the  imports  into  any  country  of  its  staple  articles  of  con- 
sumption is  followed  by  a  reduction  of  cost  approximately 
equal  to  such  reduction,  and  a  consequent  increase  in  con- 
sumption. On  the  other  hand,  nothing  is  better  settled 
than  that  an  increase  in  customs  taxes  on  imported  arti- 
cles as  a  rule  increases  prices  and  tends  to  reduce  con- 
sumption.   When  Great  Britain,  in  1863,  reduced  her  taxes 


576    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

(duties)  on  her  imports  of  tea  from  Is.  5d.  to  Is.  per 
pound,  her  importation  of  tea  increased  from  114,000,000 
pounds  in  1862  to  139,000,000  in  1866,  and  her  per  capita 
consumption  during  the  same  period  from  2.70  pounds 
to  3.42  pounds;  and  again,  when  the  duty  was  further 
reduced  in  1865  from  Is.  to  Qd.  per  pound,  the  annual  im- 
portations increased  from  139,000,000  in  1866  to  209,- 
000,000  in  1881,  and  the  per  capita  consumption  from 
3.42  pounds  to  4.58. 

When  by  the  act  of  October,  1890,  the  tax  was  removed 
from  the  imports  of  crude  sugars  into  the  United  States, 
the  price  of  the  same  went  down  almost  immediately  to 
an  equal  extent  in  all  American  markets ;  while  the  con- 
sumption of  sugar  in  the  country  increased  from  an  aver- 
age of  about  fifty-four  pounds  per  capita  in  1890  to  more 
than  sixty-seven  pounds  in  1892.  A  like  result  has  at- 
tended a  similar  experience  in  respect  to  this  in  other  coun- 
tries, and  especially  in  Great  Britain.  Thus,  the  aggre- 
gate consumption  of  sugar  by  the  British  people  in  1844 
was  returned  at  237,143  tons.  A  reduction  of  taxes  on 
its  importation  in  1864  increased  its  domestic  use  to  528,- 
919  tons;  a  reduction  of  fifty  per  cent  on  existing  rates 
in  1870  made  it  695,029  tons;  another  reduction  of  fifty 
per  cent  in  1873  carried  up  consumption  to  779,000  tons ; 
and  when,  in  1874,  all  taxes  on  the  imports  of  sugar  were 
abolished,  the  annual  domestic  consumption  increased  in 
little  more  than  a  year's  period  to  930,000  tons.  On  the 
other  hand,  when  by  the  tariff  act  of  1890  an  additional 
tax  of  half  a  cent  per  pound  was  imposed  on  the  import 
of  tin  plate  into  the  United  States,  tin  plate  went  up 
to  an  equal  extent  in  price  all  over  the  country;  and  so 
also  on  pearl  buttons,  linen  goods,  and  other  articles  of 
foreign  production  on  the  importations  of  which  the  tariff 
taxes  were  largely  increased.  By  the  tariff  act  of  1890, 
also,  eggs,  which  could  formerly  be  imported  into  the 
United  States  free  of  duty,  were  made  subject  to  a  tax  of 
five  cents  per  dozem  Since  then  the  price  of  eggs  imported 
from  Canada  into  districts  of  the  United  States  within 
the  same  sphere  of  territorial  competition  has  been  in- 
creased to  the  American  consumers  to  almost  exactly  the 
extent  of  the  import  tax  to  which  they  are  subjected. 
Thus,  when  the  price  of  eggs  was  ten  and  a  half  cents 


CUSTOMS  DUTIES  AND   PRICES.  577 

per  dozen  in  Toronto,  they  were  sixteen  cents  in  Buffalo 
and  sixteen  and  a  iialf  to  seventeen  cents  in  Xew  York. 
Such  a  result  would  be  unaccountable  if  the  Canadian 
farmers  paid  the  duty  on  eggs  sent  by  them  to  the  United 
States. 

It  is  interesting  to  here  ask  attention  to  the  opinions 
entertained  and  expressed  by  those  whose  situation  and  ex- 
perience have  qualified  them  to  speak  with  authority: 
"  The  duty  constitutes  the  price  of  the  whole  mass  of  the 
article  in  the  market.  It  is  substantially  paid  on  the  arti- 
cle of  domestic  manufacture,  as  well  as  that  of  foreign 
production "  (John  Quincy  Adams).  "  I  said  it,  and  I 
stand  by  it,  that  as  a  general  rule  the  duties  paid  on  imports 
operate  as  a  tax  upon  the  consumer"  (John  Sherman). 
Mr.  Blaine,  in  his  Twenty  Years  in  Congress,  says,  speak- 
ing of  the  increase  of  duties  on  imports  by  the  tariff  act  of 
July  14,  1862,  that  it  "  shut  out  still  more  conclusively  all 
competition  from  foreign  fabrics.  The  increased  cost  was 
charged  to  the  consumer."  Mr.  McKinley,  in  1890,  in  a 
report  introducing  a  bill  for  revision  of  the  tariff  of  the 
United  States,  in  the  direction  of  increased  rates  of  duties 
on  imports,  said  it  was  not  the  intent  of  the  bill  "to  further      ,  ^ 

cut  down  prices,"  that  the  people  were  "  already  suffering  qX^t^a^  ojL 
from  low  prices,"  and  would  not  be  satisfied  "  with  legisla-    ^'Wtrl/^ 
tion  which  will  result  in  lower  prices."     In  an  elaborate       /^ 
opinion  given  by  the  New  York  Court  of  Appeals  in  1851 
(see  vol.  iv.  New  York  Reports),  in  which  there  was  no  sus- 
picion of  any  issue  of  free  trade  or  protection,  the  courts,  in 
carefully  considering  the  relative  powers  of  the  Legislature 
and  the   judiciary   in   respect   to   taxation,   assumed   the 
proposition  that  "  all  duties  on  imported  goods  are  taxes 
on  the  class  of  consumers  "  to  be  in  the  nature  of  a  self- 
evident  truth  or  economic  axiom. 

Henry  Clay,  in  a  celebrated  speech  in  the  United 
States  House  of  Representatives  in  1833,  in  advocacy  of 
a  protective  tariff  policy,  candidly  admitted  that  "  in  gen- 
eral it  may  be  taken  as  a  rule  that  the  duty  upon  an  arti- 
cle forms  a  portion  of  its  price."  But  he  subsequently 
qualified  such  admission  by  claiming  that  it  does  not  fol- 
low that  any  consequent  enhancement  of  its  price  is  a  tax 
on  consumers,  inasmuch  as  "  directly  or  indirectly,  in  one 
form  or  another,  all  consumers  of  protected  articles,  en- 


578    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

hanced  in  price,"  will  get  an  equivalent.  But  this  may 
be  equally  affirmed  of  all  necessary  and  equitable  taxa- 
tion, and  does  not  in  any  way  antagonize  the  theory  that 
the  final  incidence  of  the  class  of  taxes  under  considera- 
tion falls  on  consumption. 

But,  notwithstanding  these  conclusions  and  the  incon- 
trovertible evidence  by  which  they  are  supported,  not  a 
few  persons  occupying  places  of  great  legislative  influ- 
ence, and  no  small  part  of  the  general  public,  hold  to  the 
view  that  taxes  on  imports  are  really  in  the  nature  of 
premiums  paid  by  foreigners  for  the  privilege  of  selling 
their  goods  in  the  markets  of  the  importing  country,  and 
do  not  fall  on  its  people  who  consume  them.  That  means 
that  if  the  foreigner  has  a  yard  of  cloth,  or  other  com- 
modity, which  he  sells  at  home  for  one  dollar,  and  the 
United  States  imposes  a  tariff  of  fifty  cents  on  it,  he  will 
then  sell  it  for  export  to  America  at  fifty  cents.  There 
is  no  instance  mentioned  in  history  where  this  has  ever 
been  done,  but  history  unfortunately  is  rarely  taken  into 
account  by  the  public  in  the  discussion  of  these  questions. 
In  this  connection  the  following  historical  incident  is  in- 
teresting and  instructive:  In  1782  an  attempt  by  the  Con- 
gress of  the  Confederation  of  the  several  American  States 
to  provide  a  system  of  revenue  to  defray  the  general  ex- 
penses of  the  Confederation  by  duties  on  imports,  which 
then  was  not  permissible,  was  blocked  by  the  refusal  of 
the  State  of  Ehode  Island  to  concur  in  it,  the  Legislature 
of  that  State  unanimously  rejecting  the  measure  for  three 
reasons — one  of  which  was  that  it  would  bear  hardest  on 
the  few  commercial  States,  particularly  Ehode  Island, 
which  in  virtue  of  their  relations  with  foreign  commerce 
monopolize  imports,  and  lightest  on  the  agricultural 
States,  that  directly  imported  little  or  nothing.  Congress 
appointed  Alexander  Hamilton  to  draft  a  reply  to  Ehode 
Island,  and  in  his  answer  he  relied  mainly  on  what  he  re- 
garded as  an  incontrovertible  fact,  that  duties  on  imports 
would  not  prove  a  charge  on  an  importing  State,  but  on 

1  the  final  consumers   of  imports,  wherever  they  may  be 

'  located. 

If  the  theory  and  assumption  are  correct  that  the  for- 
eigner pays  the  protective  taxes  which  a  country  levies  on 
its  imports,  and  that  they  do  not  fall  upon  or  are  not  paid 


TARIFF  AND  THE  FOREIGNER.        579 

by  its  people  who  consume  them,  then  it  must  follow  that 
to  the  extent  that  a  country  taxes  its  imports  it  lives  at 
the  expense  of  foreign  nations ;  and  that,  as  Great  Britain 
is  the  country  with  which  the  United  States  has  the  largest 
foreign  trade,  it  must  pay  the  largest  share  of  the  customs 
taxes  of  the  United  States,  or  a  good  share  of  its  annual 
revenue  from  all  sources.  Attention  is  further  asked  to 
the  exact  practical  application  of  this  theory.  Thus,  the 
United  States  in  1895  imported  $36,438,196  worth  of 
woollen  manufactures,  on  which  it  assessed  and  collected 
duties  (taxes)  to  the  amount  of  $20,698,264,  or  56.80 
per  cent  of  the  value  of  such  imports.  Certainly  this  was 
a  pretty  heavy  tax  on  foreign  nations  in  respect  to  the 
sales  of  only  one  class  of  these  commodities ;  but  it  repre- 
sented but  a  tithe  of  what  the  tariff  taxes  of  the  United 
States,  if  paid  by  foreigners,  cost  them.  Thus  they  had  to 
sell  their  woollens  to  the  people  of  the  latter  country  at 
less  than  half  their  value  in  order  to  compensate  for  the 
56.8-per-cent  tax.  But  a  nation  engaged  in  foreign  trade\(i, 
can  not  as  a  rule  have  two  prices  for  the  product  of  itsl  '^^^-t'" 
industries ;  or  one  price  for  what  it  sells  at  home  and  I  (j  t 
another  and  different  price  for  what  it  sells  to  foreigners./  '^ 
So  the  fifty-six  per  cent  deducted  from  the  cost  of  the 
woollens  sold  by  foreigners  to  the  United  States  necessarily 
had  to  be  deducted  not  only  from  so  much  of  their  product 
consumed  at  home,  but  also  from  what  they  sent  for  sale 
to  all  foreign  countries.  A  further  practical  application 
of  this  theory  is  worthy  of  consideration.  As  Great  Brit- 
ain imposes  no  protective  duties  or  taxes  on  its  imports, 
it  evidently  can  not  collect  anything  from  other  nations 
by  the  system  of  taxation  under  consideration.  On  the 
other  hand,  the  aggregate  value  of  its  exports  sent  to  for- 
eign nations  during  the  year  1892  was  $1,135,000,000,  and 
if  these  several  nations  taxed  this  valije  at  the  average 
rate  which  the  United  States  imposed  in  1894  on  all  its 
dutiable  imports — namely,  fifty  per  cent — Great  Britain 
obviously  had  to  pay  some  $557,000,000  in  that  year  for 
the  support  of  foreign  governments ;  and  while  this  has 
been  the  experience  of  Great  Britain  for  more  than  forty 
years  of  this  century,  she  has  as  a  nation  been  increasing 
in  wealth  during  this  whole  period. 

Some  of  the  recent  official  experiences  of  the  Govern- 


580    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

ment  of  the  United  States  that  are  pertinent  to  the  topic 
under  consideration  are  sufficiently  curious  to  make  them 
worthy  of  an  economic  record.  In  a  speech  introducing 
a  bill  into  the  United  States  House  of  Eepresentatives, 
which  subsequently  resulted  in  the  tariff  act  of  1890,  the 
then  chairman  of  the  Committee  of  Ways  and  Means  laid 
down  the  following  proposition :  "  The  Government  ought 
not  to  buy  abroad  what  it  can  buy  at  home.  Nor  should 
it  be  exempted  from  the  laws  it  imposes  upon  its  citizens." 

This  would  seem  to  warrant  the  characterization  of 
a  discovery  that  the  United  States  had  some  reliable  and 
important  source  of  revenue  independent  of  taxation,* 
and  that,  by  compelling  the  application  of  a  part  of  this 
income  to  the  payment  of  taxes  to  itself,  the  Government 
is  placed  upon  an  equality  with  the  citizens.  A  legitimate 
criticism  on  this  proposition  is  that  the  idea  that  all  the 
income  of  the  Treasury  is  derived  from  the  people,  and 
that  to  transfer  portions  of  this  income  from  one  official 
recipient  to  another  can  have  hardly  any  other  result  than 
an  additional  cost  of  bookkeeping,  seems  never  to  have 
entered  the  mind  of  the  speaker. 

Again,  the  United  States  tariff  act  of  1883  contained 
in  its  free  list  a  provision  for  the  admittance  of  "  articles 
imported  for  the  use  of  the  United  States,  provided  that 
the  price  of  the  same  did  not  include  the  duty  "  imposed 
on  such  importations.  Under  the  tariff  act  of  1890  this 
provision  was  stricken  out  of  the  statute,  with  the  result 
that  when  the  Government  imported  any  articles  for  its 
own  use  which  were  subject  to  duties  (as,  for  example, 
materials  to  be  used  in  the  National  Bureau  of  Printing 
and  Engraving),  it  was  obliged,  in  virtue  of  its  non-exemp- 
tion from  the  laws  which  it  imposed  on  its  own  citizens, 
to  pay  such  duties  itself.  But  as  the  Government  has  no 
authority  to  expend  money  for  any  purpose  without  the 
authority  of  Congress,  the  latter  body  accordingly  author- 
ized the  Federal  Treasury  to  appropriate  money  from  its 
tax  receipts  and  make  payments  with  the  same  to  the  cus- 

*  Of  the  net  ordinary  receipts  of  the  Federal  Government 
($385,819,000)  in  189.3,  only  about  $12,000,000  was  derived  from 
soiirces  that  could  not  be  regarded  as  taxes,  and  were  mainly  re- 
ceipts from  the  sales  and  surveys  of  public  and  Indian  lands 
($4,120,000)  and  of  other  Government  property. 


GOVERNMENT  PAYS  DUTIES.  581 

tomhouse,  which  the  customhouse  was  to  immediately 
pay  back  into  the  Treasury.  Just  what  process  was  gone 
through  with  to  effect  such  a  result  the  public  was  not 
informed,  but  probably  the  collector  of  customs  drew  his 
warrant  on  the  Treasury,  had  the  amount  credited  to  his 
account,  and  then  recredited  to  the  Treasury.  But,  be  this 
as  it  may,  it  is  clear  that  the  Government,  under  the  con- 
ditions above  stated,  paid  the  tax  on  its  imports;  that 
the  tax  may  be  regarded  in  the  light  of  a  penalty  on  the 
Government  for  importing  articles  for  its  own  use;  and 
that  the  action  of  Congress  in  authorizing  the  Treasury 
to  appropriate  money  for  the  payment  of  such  taxes  was  i 
a  recognition  or  admission  by  that  body  that  a  tax  upon ' 
imports  neither  puts  anything  in  nor  takes  anything  from 
the  pocket  of  the  foreigner.  Does  it  not,  moreover,  invest 
with  a  degree  of  comicality  a  law  enacted  by  the  Congress 
of  the  United  States  for  the  purpose  of  taxing  foreign 
importers,  which  necessitated  the  enactment  by  it  of  an- 
other law  appropriating  money  to  enable  the  United  States 
to  pay  customs  taxes  every  time  on  everything  that  it  may 
import  for  its  omti  uses  ?  *     Finally,  if  the  foreigner  and 

*  In  1897  the  merchant  tailors  of  the  United  States,  Avho  ought 
to  know  something  about  the  incidence  of  a  custom  tax  on  im- 
ported clothing,  united  in  a  petition  to  Congress  asking  that 
Americans  returning  from  Europe  be  permitted  to  introduce  only 
two  suits  of  foreign-made  clothes  free  of  duty;  and  in  support  of 
their  request  they  comment  as  follows  on  a  ruling  of  the  Treasury 
in  respect  to  this  matter:  "Under  this  ruling  it  was  possible  to 
enter  free  of  duty  vast  quantities  of  foreign-made  garments  which 
had  never  been  actually  in  use,  and  which  were  so  imported  solely 
because  there  exists  a  relative  difference  of  at  least  fiftj_^£er  cent 
in  values  between  the  cost  of  made-up  garments  in  'the  United 
States  and  Europe,  thus  saving  to  the  purchaser  of  garments  abroad 
one  half  of  their  actual  value  upon  arrival  within  the  United  States 
duty  free."  But  if  the  foreigner  who  made  and  sold  the  goods 
in  question  was  liable  to  pay  the  duty  on  dutiable  clothing,  and 
attended  to  his  duty,  there  would  be  no  profit  to  the  returning 
tourist  in  importing  clothing  free  of  diity.  It  is  further  evident 
also  that  American  tailors  agree  in  opinion  with  Alexander  Ham- 
ilton that  the  consumers  of  imported  articles  pay  the  customs  taxes. 

The  records  of  the  commercial  relations  between  the  United 
States  and  Canada  are  exceedingly  instructive  on  this  matter.  They 
all  show  that  for  the  products  which  the  Canadian  sends  to  the 
United  States,  and  on  which  somebody  pays  the  duty,  he  receives 
exactly  the  same  price  as  for  those  products  which  he  sends  to 
England,  on  which  nobody  pays  any  duty.     This  experience  is 


582    THE  THEORY   AND   PRACTICE   OF   TAXATION. 

not  our  citizens  pays  our  customs  taxes  on  imports,  what 
is  the  object  of  placing  by  specific  statutes  any  article 
on  the  free  list  ?  Why  not  let  him  continue  to  pay  millions 
of  taxes  for  us,  as,  for  example,  on  sugar? 

Attention  is  next  asked  to  an  analysis  of  the  incidence 
of  taxation,  what  is  mainly  direct,  on  processes  and  prod- 
ucts, and  on  the  machinery  by  which  one  is  effected  and 
the  other  distributed.  At  the  outset  the  following  proposi- 
tions in  the  nature  of  economic  axioms   are  submitted, 

exactly  the  same  as  that  of  the  farmers  of  the  Northwestern  States 
of  the  Fedeial  Union,  who  usually  get  the  same  price  for  their 
wheat  furnished  to  a  Minnesota  flour  mill,  or  for  shipment  to  free- 
trade  England,  as  to  countries  like  France  and  Germany,  where 
heavy  duties  are  assessed  upon  its  import.  The  term  "  usually  "  is 
employed,  for  producers  in  the  United  States  and  Canada  alike  do 
not  always  get  as  large  a  price  for  the  articles  they  export  as  for 
the  same  articles  they  sell  to  their  fellow-countrymen.  Again,  if 
it  be  true,  as  the  advocates  of  extreme  protection  assert,  that  the 
foreign  exporter  and  not  the  consumer  pays  the  duties  on  goods 
sent  by  him  for  sale  in  this  country,  how  does  it  happen  that  it  is 
not  true  concerning  the  farm  produce  and  live  stock  exported  from 
Canada?  And  why  should  American  farmers  be  exempt  from  this 
rule  in  sending  their  grain  to  Europe  ?  Has  anybody  ever  known  of 
England  buying  American  products  any  cheaper  in  New  York  than 
France  or  Germany,  and  is  it  not  also  true  that  the  French  or 
German  or  Italian  consumer  usually  pays  at  least  the  amount  of 
the  duty  levied  by  his  Government  more  for  American  products 
than  his  English  competitor  has,  whose  imports  are  subjected  to 
no  duty?  During  the  period  from  1854  to  1866  there  was,  under 
the  reciprocity  treaty,  practically  free  trade  between  Canada  and 
the  United  States  in  live  stock,  wool,  barley,  rye.  peas,  oats,  and 
other  farm  products,  while  subsequent  to  1866,  when  the  reciprocity 
treaty  had  been  repealed,  duties  were  imposed  on  all  these  articles 
on  their  import  from  Canada  into  the  United  States.  During  the 
first  period  Canadian  horses,  for  example,  sold  under  free  trade  for 
shipment  to  the  United  States  at  from  sixty-five  to  eighty-five 
dollars  each,  while  during  the  years  next  subsequent  to  1866  the 
value  of  the  Canadian  horses  imported  into  the  United  States  was 
returned  at  from  ninety-two  to  one  hundred  and  four  dollars  each ; 
thus  showing  that  tlie  United  States  tariff  did  not  force  the 
Canadian  horse  breeders  to  lower  their  prices  in  order  to  compen- 
sate American  purchasers  for  the  duties  exacted.  And  as  regards 
the  other  products  mentioned,  the  official  data  show  that  in  no 
case  did  the  imposition  of  duties  under  the  United  States  tariff 
reduce  the  prices  paid  by  American  purchasers  to  the  Canadian 
farmers  for  their  products.  These  are  very  commonplace,  very 
familiar,  and  very  convincing  facts  which  ought  to  silence  all 
this  talk  about  the  foreign  exporter  or  anybody  else  but  the  con- 
sumer paying  the  duty;  but  it  is  not  at  all  probable  that  they  will. 


THE  COST  OF  PRODUCTION.  583 

which  it  is  believed  will  serve  as  stepping  stones  to  the 
attainment  of  broad  generalizations. 

Thus,  property  is  solely  produced  to  supply  human  ./ 
wants  and  desires;  and  taxes  form  an  important  part 
of  the  cost  of  all  production,  distribution,  and  consump- 
tion, and  represent  the  labour  performed  in  guarding  and 
protecting  property  at  the  expense  of  the  State,  in  all  the 
processes  of  development  and  transformation.  The  State 
is  thus  an  active  and  important  partner  in  all  production 
Without  its  assistance  and  protection,  production  would 
be  impeded  or  wholly  arrested.  The  soldier  or  policeman- 
guards,  while  the  citizen  performs  his  labour  in  safety 
As  a  partner  in  all  the  forms  of  production  and  business, 
the  State  must  pay  its  expenses — i.  e.,  its  agents,  for  their 
services ;  and  its  only  means  of  paying  are  through  its  re- 
ceipts from  taxation.  Taxes,  then,  are  clearly  items  of 
expense  in  all  business,  the  same  as  rent,  fuel,  cost  of 
material,  light,  labour,  waste,  insurance,  clerical  service, 
advertising,  expressage,  freight,  and  the  like,  and  on  busi- 
ness principles  they  find  their  place  on  the  pages  of  profit 
and  loss ;  and,  like  all  other  expenses  which  enter  into 
the  cost  of  production,  must  finally  be  sustained  by  those 
who  gratify  their  wants  or  desires  by  consumption.  Pro- 
duction is  only  a  means,  and  consumption  is  the  end,  and 
the  consumer  must  pay  in  the  end  all  the  expenses  of  pro- 
duction. Every  dealer  in  domestic  or  imported  merchan- 
dise keeps  on  hand,  at  all  times,  upon  his  shelves,  a  stock 
of  different  and  accumulated  taxes — customs,  internal 
revenue.  State,  school,  and  municipal — with  his  goods ; 
and  when  we  buy  and  carry  away  an  article  from  any  store 
or  shop,  we  buy  and  carry  away  with  it  the  accompany- 
ing and  inherential  taxes. 

Any  primary  taxpayer,  who  does  not  ultimately  con- 
sume the  thing  taxed,  and  who  does  not  include  the  tax 
in  the  price  of  the  taxed  property  or  its  products,  must 
literally  throw  away  his  money  and  must  soon  become 
bankrupt  and  disappear  as  a  competitor;  and  accordingly 
the  tax  advancer  will  add  the  tax  in  his  prices  if  he  under- 
stands simple  addition.  How  rapidly  bankruptcy  would 
befall  dealers  in  imported  goods,  wares,  and  merchandise 
in  the  United  States  who  did  not  strictly  observe  this  rule 
will  be  realized  when  one  remembers  that  the  average  tax 


584    THE  THEORY  AND   PRACTICE  OF  TAXATION. 

imposed  by  its  Government  (in  1896)  on  all  dutiable  im- 
ports is  in  excess  of  fifty  per  cent. 

When  Dr.  Franklin  was  asked  by  a  committee  of  the 
English  House  of  Commons,  prior  to  the  American  Revo- 
lution, if  the  province  of  Pennsylvania  did  not  practically 
relieve  farmers  and  other  landowners  from  taxation,  and 
at  the  same  time  impose  a  heavy  tax  on  merchants,  to  the 
injury  of  British  trade,  he  answered  that  "  if  such  special 
tax  was  imposed,  the  merchants  were  experts  with  their 
pens,  and  added  the  tax  to  the  price  of  their  goods,  and 
thus  made  the  farmers  and  all  landowners  pay  their  part  of 
the  tax  as  consumers." 

Taxes  uniformly  levied  on  all  the  subjects  of  taxation, 
and  which  are  not  so  excessive  as  to  become  a  prohibition 
on  the  use  of  the  thing  taxed,  become,  therefore,  a  part 
of  the  cost  of  all  production,  distribution,  and  consump- 
tion, and  diffuse  and  equate  themselves  by  natural  laws 
in  the  same  manner  and  in  the  same  minute  degree  as  all 
other  elements  that  constitute  the  expenses  of  production. 
We  produce  to  consume  and  consume  to  produce,  and  the 
cost  of  consumption,  including  taxes,  enters  into  the  cost 
of  production,  and  the  cost  of  production,  including  taxes, 
enters  into  the  cost  of  consumption,  and  thus  taxes  levied 
uniformly  on  things  of  the  same  class,  by  the  laws  of 
competition,  supply,  and  demand,  and  the  all-pervading 
mediums  of  labour,  will  be  distributed,  percussed,  and  re- 
percussed  to  a  remote  degree,  until  they  finally  fall  upon 
every  person,  not  in  proportion  to  his  consumption  of  a 
given  article,  but  in  the  proportion  his  consumption  bears 
to  the  aggregate  consum])tion  of  the  taxed  community. 

A  great  capitalist,  like  Mr.  Astor,  bears  no  greater 
burden  of  taxation  (and  can  not  be  made  to  bear  more 
by  any  laws  that  can  be  properly  termed  tax  laws)  than 
the  proportion  which  his  aggregate  individual  consump- 
tion bears  to  the  aggregate  individual  consumption  of 
all  others  in  his  circuit  of  immediate  competition;  and 
as  to  his  other  taxes,  he  is  a  mere  tax  collector,  or  con- 
duit, conducting  taxes  from  his  tenants  or  borrowers  to 
the  State  or  city  treasury.  A  whisky  distiller  is  a  tax 
conduit,  or  tax  collector,  and  sells  more  taxes  than  the 
original  cost  of  whisky,  as  finds  proof  and  illustration 
in  the  fact  that  the  United  States  imposes  a  tax  of  one 


LAW  OF  DIFFUSION.  585 

dollar  and  ten  cents  per  gallon  on  proof  whisky  which  its  / 
manufacturer  would  be  very  glad  to  sell  free  of  tax  for  an  f^ 
average  of  thirteen  cents  per  gallon.  The  tax,  further- 
more, is  required  to  be  laid  before  the  whisky  can  be  re- 
moved from  the  distillery  or  bonded  warehouse  and  allowed 
to  become  an  article  of  merchandise.  Tobacco  in  like  man- 
ner can  not  go  into  consumption  till  the  tax  is  paid.  In 
Great  Britain,  where  all  tobacco  consumed  is  imported, 
for  every  '3d.  paid  by  the  consumer,  2.5d.  represents  cus- 
toms duties  or  taxes.  In  Eussia  it  is  estimated  that  the 
Government  annually  requires  of  its  peasant  producers 
one  third  the  market  value  of  their  entire  crop  of  cereals 
in  payment  of  their  taxes,  and  fixes  the  time  of  collecting 
the  same  in  the  autumn,  when  the  peasant  sells  sufficient 
of  his  grain  (mainly  for  exportation),  and  with  the  pur- 
chase money  meets  the  demands  of  the  tax  collector.  Can 
it  be  doubted  that  the  sums  thus  extorted  enter  into  and 
form  an  essential  part  of  the  cost  of  the  entire  crop  or 
product  of  the  land?  It  is,  therefore,  immaterial  where 
the  process  of  manufacture  takes  place;  the  citizens  of  a 
State  pay  in  proportion  to  the  quantity  which  they  con- 
sume. The  traveller  who  stops  at  one  of  the  great  city 
hotels  can  not  avoid  reimbursing  the  owner  for  the  tax  he 
primarily  pays  on  the  property,  and  the  owner,  in  respect 
to  the  taxation  of  his  hotel  property,  is  but  a  great  effect- 
ive real-estate  and  diffused  tax  collector.  Again,  the 
farmer  charges  taxes  in  the  price  of  his  products;  the 
labourer,  in  his  wages ;  the  clergyman,  in  his  salary ;  the 
lender,  in  the  interest  he  receives ;  the  lawyer,  in  his  fees ; 
and  the  manufacturer,  in  his  goods. 

The  American  Bible  Society  is  always  in  part  loaded 
with  the  whisky  and  tobacco  taxes  paid  by  the  printers, 
paper-makers,  and  bookbinders,  or  by  the  producers  of 
articles  consumed  by  these  mechanics,  and  reflected  and 
embodied  in  their  wages  and  the  products  of  their  labour 
according  to  the  degree  of  absence  of  competition  from 
fellow-mechanics  who  abstain  from  the  use  of  these  and 
other  taxed  articles. 

These  conclusions  respecting  the  diffusion  of  taxes  may 

be  said  to  be  universally  accepted  by  economists  so  far 

as  they  relate  to  the  results   of  production  before  they 

reach  the  hands  of  the  final  consumers ;  but  they  are  not 

38 


586    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

accepted  by  many,  as  Mr.  Henry  George  has  recently  ex- 
pressed it,  in  respect  to  taxes  on  special  profits  or  advan- 
tages on  things  of  which  the  supply  is  strictly  limited,  or 
of  wealth  in  the  hands  of  final  consumers,  or  in  the  course 
of  distribution  by  gift,  and  finally  in  respect  to  taxes  on 
land.  But  a  little  examination  would  seem  to  show  that 
all  these  exceptions  are  of  the  kind  that  are  said  to 
prove  the  rule.  Special  profits  and  advantages  in  this 
age  of  quick  diffusion  of  knowledge  and  intense  competi- 
tion are  exceedingly  ephemeral,  and  are  mainly  confined 
to  results  which  the  State  with  a  view  of  encouraging  re- 
moves for  a  limited  time  from  the  natural  laws  of  com- 
petition by  granting  patents,  copyrights,  and  franchises. 
Of  things  which  are  strictly  limited  in  respect  to  supply, 
what  and  where  are  they?  Only  a  very  few  can  be  speci- 
fied: ivory,  Peruvian  guano,  whalebone,  ambergris,  and  the 
pelts  of  the  fur  seal.  Of  wealth  in  the  process  of  trans- 
mission, or  in  the  hands  of  final  consumers,  it  is  not  tan- 
gible wealth  unless  it  is  tangible  property,  which  conforms 
under  any  correct  system  of  taxation  to  the  principles  of 
taxation;  and  if  any  one  advocates  the  taxation  of  the 
right  to  receive  property  which  has  already  been  taxed, 
he  in  effect  advocates  a  double  exaction  of  one  and  the 
same  thing.  If  it  be  asked.  Will  an  income  tax  on  a  per- 
son retired  from  business  be  diffused?  the  answer,  beyond 
question,  must  be  in  the  affirmative,  if  the  tax  is  uniform 
on  all  persons  and  on  all  amounts,  and  is  absolutely  col- 
lected in  minute  sums.  Would  any  one  pay  the  same  price 
for  a  railroad  bond  which  is  subject  to  an  income  tax  as 
he  would  for  it  if  it  was  free  from  tax?  If  one's  land  is 
taxed,  either  in  the  form  of  rent  or  income,  will  not  the 
tenant  have  the  burden  primarily  thrown  upon  him  ?  And, 
finally,  will  not  the  consumer  of  the  tenant's  goods  pay 
through  or  by  reason  of  such  consumption? 

Eespecting  the  incidence  of  the  tax  on  mortgages,  it 
does  not  make  an}'-  difference  how  mortgages  are  taxed — 
no  earthly  power  canmake  the  lender  pay  it.  If  the  bor- 
rower woiiTd  not  agree  to  pay  the  tax,  the  "lender  would 
not  loan  him  money,  and  whenever  possible  loans  would 
be  foreclosed  and  payment  insisted  upon  if  the  borrower 
should  refuse  to  pay  the  tax. 

Let  us  next  subject  to  analysis  the  incidence  of  the 


^ 


TAXATION  OF  LAND.  58^ 

so-called  taxation  of  land.  Considered  per  se  (or  in  it-[ 
self),  land,  in  common  with  unappropriated  air  and  water,] 
has  no  value ;  and  it  can  not  in  any  strict  sense  be  affirmed  i 
that  we  tax  land;  and  when  such  affirmation  is  made,  its 
only  legitimate  and  justifiable  meaning  is  that  we  tax 
the  value  of  land;  which  value  is  due  entirely  to  the 
amount  of  personal  property  (in  the  sense  of  embodied 
labour)  expended  upon  it,  and  the  pressure  or  demand 
of  such  property  or  labour  to  use,  possess,  and  occupy  it. 

Vattel,  in  his  Law  of  Nations,  enunciates  as  a  self-  v/j. 
evident  and  irrefutable  proposition  that  "Nature  has  not(     ^-t 
herself  established  property,  and  in  particular  with  regard ](v      ''<-/ 
to  lands.     She  only  approves  this  introduction  for  the  ad-'^^)^      \y 
vantage  of  the  human  race."  " '" 

One  of  the  most  striking  examples  of  evidence  in  illus- 
tration and  proof  of  this  proposition  is  to  be  found  in  an 
incident,  which  has  heretofore  escaped  attention,  which 
occurred  during  a  debate  in  the  Senate  of  the  United  States 
in  1890  on  a  bill  for  revision  of  duties  on  imports,  in  re- 
spect to  the  article  borax  (borate  of  soda).  Formerly 
the  world's  supply  of  this  mineral  substance,  which  enters 
largely  into  industrial  processes  and  medicine,  was  limited, 
and  mainly  derived  from  certain  hot  springs  in  Tuscany, 
Italy;  but  within  a  comparatively  recent  period  it  has 
been  found  that  it  exists  in  such  abundance  in  certain 
of  the  desert  regions  of  California,  Nevada,  and  Arizona, 
that  it  can  be  gathered  with  the  minimum  of  labour  from 
the  very  surface  of  the  ground.  Were  a  single  acre  of  simi- 
lar desert  to  be  found  in  anv  section  of  a  country  enjoy- 
ing the  most  ordinary  privileges  in  respect  to  'transpor- 
tation and  water  supply,  it  would  be  a  source  of  wealth 
to  its  proprietor.  But  under  existing  circumstances,  al- 
though thousands  and  thousands  of  acres  of  this  land  can 
be  bought  with  certain  title  from  its  owner — the  Federal 
Government — for  two  dollars  and  twenty-five  cents  an 
acre,  no  one  wants  it  at  any  price;  and  the  prospective  de- 
mand for  it  has  not  yet  been  sufficient  to  warrant  the  Gov- 
ernment in  instituting  even  a  survey  as  a  preliminary  to 
effecting  a  sale.  In  the  Senate  debate  above  alluded  to  it 
was  proposed  to  increase  the  duty  on  imported  borax,  with 
the  expectation  that  a  consequent  increase  in  its  domestic 
price  would  afford  sufficient  profit  to  induce  such  construe- 


4. 


588    THE  THEORY  AND   PRACTICE  OF  TAXATION. 

ion  of  roads  and  such  a  sup}jly  of  water  and  labour  on  the 
borax  tracts  of  the  deserts  as  to  enable  them  to  become 
property.* 

/  In  the  oases  of  the  deserts  of  North  Africa  and  Egypt 
/the  value  of  a  tract  of  land  depends  very  little  upon  its 
size  or  location,  but  almost  exclusively  upon  the  number 
of  the  date-bearing  palms,  the  result  of  labour,  growing 
upon  it,  and  the  quality  of  their  fruit.  John  Bright  on 
one  occasion  stated  that  if  the  land  of  Ireland  were 
stripped  of  the  improvements  made  upon  it  by  the  labour 
of  the  occupier,  the  face  of  the  country  would  be  "  as  bare 
land  naked  as  an  American  prairie." 

An  exact  parallel  to  this  state  of  things  is  afforded  in 
the  case  of  lands  of  no  value  reclaimed  from  the  sea  and 
made  valuable,  as  has  been  often  done  in  England,  Hol- 
land, and  other  countries,  by  embodying  labour  upon  them 
in  the  shape  of  restraining  embankments  and  the  trans- 
portation and  use  of  filling  material.  Again,  the  value 
of  springs  or  running  streams  of  water  is  generally  limited 
and  of  little  account.  But  when,  through  direct  labour, 
or  the  results  of  labour,  the  water  is  collected  in  reservoirs 
and  made  the  instrumentality  of  imparting  power  to  ma- 
chinery, or  conducted  through  conduits  to  centres  of  popu- 
lation which  otherwise  could  not  obtain  it,  it  becomes 
extremely  valuable,  and  capable  of  being  sold  in  large  or 
small  quantities.  Another  similar  illustration  is  to  be 
found  in  the  case  of  atmospheric  air,  which  in  its  natural 
and  ordinary  state  has  no  marketable  value,  but  when 
compressed  by  labour  embodied  in  the  form  of  machinery 
and  made  capable  of  transmitting  force,  it  at  once  be- 
comes endowed  with  value  and  can  be  sold  at  a  high  price. 
An  opinion  entertained  and  strongly  advocated  by  not 
a  few  economic  waiters  and  teachers  of  repute  (more  espe- 
cially in  Europe,  but  not  in  the  United  States)  f  is,  that 

* "  Senator  Paddock :  I  should  like  to  ask  the  Senator  from 
Nevada  if,  in  the  region  of  country  where  borax  is  found,  by  reason 
of  finding  it  the  land  in  the  particular  State  or  Territory  is  appre- 
ciated in  value  on  account  of  its  existence. 

"  Senator  Stewart:  Not  at  all. 

"  Senator  Paddock:  The  value  then  given  to  it  is  all  in  labour." 
— ConffressioiniJ  Rrrord.  Jiihi.  Jf^90. 

t  "In  America,"  writes  Professor  Seligman,  "  the  few  writers 
of  prominence  on  the  subject  of  taxation  were,  until  recently,  al- 


DIFFUSION  OF  LAND  TAX.  589 

taxes  on  land  do  not  diffuse  themselves,  but  fall  wholly  on 
the  landowner,  and  that  there  is  no  way  in  which  he  can 
throw  it  off  and  cause  any  considerable  part  of  them  to 
be  paid  by  anybody  else.  The  concrete  argument  in  sup- 
port of  this  opinion  has  been  thus  stated :  "  When  land  is 
taxed,  the  owner  can  not,  as  a  general  rule,  escape  the  tax, 
for  the  reason  that,  to  get  rid  of  the  tax,  the  price  of  the 
land  or  of  the  rent  must  be  raised  the  full  amount  of  the 
tax,  and  the  only  way  in  which  this  can  be  done  is  by 
reducing  the  supply  or  quantity  offered  in  market,  or  else 
by  increasing  the  demand.  The  supply  of  laud  can  not 
be  reduced,  and  the  demand  being  created  by  capital  and 
population,  both  of  which  are  beyond  the  control  of 
the  landowner,  he  can  do  nothing  to  raise  the  price  of 
land,  and  hence  can  not  get  rid  of  the  tax.  It  may 
be  stated,  then,  as  a  general  rvile,  that  a  tax  on  land,  or 
on  any  commodity  the  supply  of  which  is  limited  abso- 
lutely, must  be  paid  by  the  owner.  It  is  possible  to  sug- 
gest cases  in  which,  through  combination  of  owners  and 
the  necessities  of  consumers,  a  demand  may  be  created 
strong  enough  to  raise  the  price  to  the  full  amount 
of  such  tax,  but  it  is  doubted  if  such  cases  ever  really 
occur."  * 

The  source  of  the  contention  on  this  important  eco- 
nomic and  social  question,  and  the  difftculty  in  the  way  of 
the  attainment  of  harmonious  conclusions,  is  due  to  a  non- 
recognition  of  the  fact  that  land  is  taxed  under  two  con- 
ditions, and  can  not  be  taxed  otherwise.  Thus,  if  a  person 
holds  land  for  his  exclusive  use  or  enjoyment,  and  con- 
sumes all  of  its  product,  a  tax  on  such  land,  which  has 
been  characterized  by  some  economists  as  its  "  pure  rent," 
will  not  diffuse  itself,  because  it  is  a  tax  on  personal  en- 
most  all  followers  of  Thiers,"  the  French  economist  and  statesman, 
who  claimed  to  have  invented  the  term  "  diffusion  "  of  taxes. 

*  '■  Our  conclusion  is,  that  under  actual  conditions  in  America 
to-day  the  landowner  may  virtually  be  declared  to  pay  in  the  last 
instance  the  taxes  that  are  imposed  on  his  land,  and  that  at  all 
events  it  is  absolutely  erroneous  to  assume  any  general  shiftiufj  to 
the  consumer.  In  so  far  as  our  land  tax  is  a  part  of  a  general  prop- 
erty tax,  it  can  not  possibly  be  shifted;  in  so  far  as  it  is  more 
or  less  an  exclusive  tax,  it  is  even  then  apt  to  remain  where  it 
is  first  put — on  the  landowner." — Seligman:  Incidence  of  Taxa- 
tion, p.  99. 


590    THE  THEORY  AND  PRACTICE  OP  TAXATION. 


Jt^-  joyment  or  final  consumption.    The  same  is  the  case  when 
v3'  ^  a  portion  of  a  river  or  lake  or  its  shore  is  rented  for  fish- 
^'         ing  for  the  purposes  of  sport.      A  like  result  will  also 
follow,  in  a  greater  or  less  degree,  from  the  inability  or 
<(  unwillingness  of  tenants,  as  has  been  often  the  case  in 
->^  Ireland,  to  pay  rent  sufficient  to  reimburse  the  landowner 
for  interest  on  his  investment  of  capital  and  cost  of  re- 
pairs.    But  if  one  employs   land  as   an  instrumentality 
for  acquiring  gain  through  its  uses,  the  taxation  of  land 
must  include  the  taxation  of  its  uses — its   contents,  all 
that  rests  upon  it,  all  that  is  produced,  sold,  expended, 
manufactured,  or  transported  on  it — and  all  such  taxes 
will  diffuse  themselves.     On  the  other  hand,  if  the  taxa- 
V'^^ion   of   land   under    such    circumstances    and    conditions 
^     A  does  not  diffuse  itself,  then  the  takingjg_shnply_a_process 


>  <5^  Ji^^of   confiscation,   which   if   continued   will   ultimately   rob 

^      the~owner  of  liis  property,  and  is  not  governed  by  any 

principle. 

It  is  indeed  difficult  to  see  how  a  theory  so  wholly  in- 
applicable to  fact  and  experience  as  that  of  the  nondiffu- 
sion  of  taxes  on  land — which  makes  property  in  land  an 
exception  to  the  rule  acknowledged  to  be  applicable  to  all 
other  property — could  originate  and  be  strenuously  main- 
tained to  the  extent  even  of  stigmatizing  any  opposite 
view  "  as  so  very  superficial  as  scarcely  to  deserve  a  refu- 
tation." *  No  little  of  confusion  and  controversy  on  this 
subject  has  arisen  from  the  assumption  that  land  specifi- 
cally, and  the  rent  of  land,  constitute  two  distinct  and 
legitimate  subjects  for  taxation,  when  the  fact  is  just  the 
contrary.  The  rent  of  land  is  in  the  nature  of  an  income 
to  its  owner;  and  it  is  an  economic  axiom  that  when  a 
government  taxes  the  income  of  property  it  in  reality  taxes 
the  property  itself.  In  England  and  on  the  continent  of 
Europe  land  is  generally  taxed  on  its  yearly  income  or  in- 
come value,  and  these  taxes  are  always  considered  as  land 
taxes.  Alexander  Hamilton,  in  discussing  the  taxation 
of  incomes  derived  directly  from  property,  used  this  lan- 
guage :  "  What,  in  fact,  is  property  but  a  fiction,  without 
the  beneficial  use  of  it?  In  many  instances,  indeed,  the 
income  is  the  property  itself."    The  United  States  Supreme 

*  Seligman.     Shifting  and  Incidence  of  Taxation. 


TAXATION  OP  RENT.  591 

Court,  in  its  recent  decision  of  the  income  tax  (1895),  also 
practically  indorsed  this  conclusion.  To  levy  taxes  on 
the  rent  of  land  and  also  upon  the  land  itself  is,  there- 
fore, double  taxation  on  one  and  the  same  property,  which 
in  common  with  all  other  unequal  and  unjust  taxes  can 
not  be  diffused;  and  for  this  reason  should  be  regarded 
as  in  the  nature  of  exactions  or  confiscation,  concerning 
the  incidence  of  which  nothing  can  be  safely  predicated. 
In  short,  this  whole  discussion,  and  the  unwarranted  as- 
sumption involved  in  it  and  largely  accepted,  is  an  illus- 
tration of  what  may  be  regarded  as  a  maxim,  that  the 
greatest  errors  in  political  economy  have  arisen  from  over- 
looking the  most  obvious  facts  or  deductions  from  ex- 
perience. 

With  a  purpose  of  further  elucidating  this  problem, 
attention  is  asked  first  to  its  consideration  from  an  "  ab- 
stract," and  next  from  a  practical  standpoint  of  view.  Let 
us  endeavour  to  clearly  understand  the  common  mean- 
ing of  the  word  "  rent."  It  is  derived  from  the  Latin 
reddita,  "  things  given  back  or  paid,"  and  in  plain  Eng- 
lish is  a  word  for  price  or  hire.  It  may  be  the  hire  of  any- 
thing. It  is  the  price  we  pay  for  the  right  of  exclusive  use 
over  something  which  is  not  our  own.  Thus  we  speak  of 
the  rent  of  land,  of  buildings  and  apartments,  of  a  fishery, 
of  boats,  of  water,  of  an  opera  box,  of  a  piano,  sewing  ma- 
chines, furniture,  vehicles,  and  the  like.  In  Scotland  at 
the  present  time  farmers  hire  cows  to  dairymen,  who  pay 
an  agreed-upon  price  by  the  year  or  for  a  term  of  years 
for  each  cow,  and  reimburse  themselves  for  such  payment 
and  make  a  profit  on  the  transaction  by  the  sale  of  the 
products  of  the  animal.  This  hire  is  called  a  rent,  and  is 
clearly  the  same  in  kind  as  the  rent  of  land.  We  do  not 
apply  the  word  "  hire  "  to  the  employment  of  men,  because 
we  have  a  separate  word — "  wages  " — for  that  particular 
case  of  hire.  Neither  do  we  apply  the  word  "  rent "  in 
English  to  the  hire  of  money,  because  we  have  another 
separate  word — "  interest '" — which  has  come  into  special 
use  for  the  price  paid  for  the  loan  or  hire  of  money.  But 
in  the  French  language  the  word  rent  is  habitually  and 
specially  used  to  signify  the  price  of  the  hire  money,  and 
that  of  "  rentes  "  to  investments  of  money  paying  interest ; 
the  French  national  debt  being  always  spoken  of  as  "  les 


592    THE   THEORY  AND   PRACTICE   OP   TAXATION. 

rentes  ";  while  the  men  who  live  on  the  lending  of  money, 
or  capital  in  any  form,  are  called  '*  rentiers." 

The  question  next  naturally  arises,  Why  is  it  necessary 
to  set  up  any  special  theory  at  all  about  the  disposition 
of  the  price  which  we  pay  for  the  hire  of  land,  any  more 
than  about  the  price  we  pay  for  the  hire  of  a  house,  of 
furniture,  of  a  boat,  of  an  opera  box,  or  of  a  cow?  The 
particular  kind  of  use  to  which  we  put  each  of  these 
various  things  is  no  doubt  very  different  from  the  kind 
of  use  to  which  we  put  each  or  all  the  others.  But  all 
of  these  uses  resolve  themselves  into  the  desire  we  have 
to  derive  some  iiilEnswi'Q'  oi'^ngsi^y^^  by  the  possession 
for  a  time  of  the  right  of  exclusive  use  of  something  which 
is  not  our  own,  and  for  which  we  must  pay  the  price,  not 
of  purchase,  but  of  hire. 

The  explanation  of  this  curious  economic  phenomenon 
is  to  be  found  in  the  assumption  and  positive  assertion  on 
the  part  of  not  a  few  distinguished  economists  that  the 
truly  scientific  and  only  correct  use  of  the  term  "  rent " 
is  its  application  to  the  "  income  derived  from  things  of 
all  kinds  of  which  the  supply  is  limited,  and  can  not  be 
increased  by  man's  action."  *  As  a  rule,  economists  who 
accept  this  definition  confine  its  application  to  the  hire 
of  land  alone,  although  it  professes  to  include  other  things, 
"  of  all  kinds,"  to  which  the  same  description  applies — 
namely,  that  they  can  not  be  increased  in  quantity  by  any 
human  action.  There  are,  however,  no  such  other  things 
specified,  and  in  any  literal  sense  there  are  no  such  other 
things  existing,  unless  water  and  the  atmosphere  be  in- 
tended. 

Now,  although  it  is  indisputably  true  that  man  by  his 
action  can  not  increase  the  absolute  or  total  quantity  of 
land,  any  more  than  of  water  and  air,  appertaining  to  the 
whole  globe  on  which  we  live,  there  is  practically  no  limita- 
tion to  the  degree  of  value  which  man's  action  can  impart 
to  land,  and  which  is  the  only  thing  for  which  land  is 
wanted,  bought,  or  sold,  and  which,  as  already  shown,  can 
be  truly  made  the  subject  of  taxation.  The  tracts  of  land 
on  the  earth's  surface  which  are  of  no  present  marketable 
value  are  its  deserts,  its  wildernesses,  the  sides  and  summits 

*  Professor  Marshall.     Principles  of  Economics,  vol.  i,  p.  142. 


PRACTICAL  CONSEQUENCES.  593 

of  its  mountains,  and  its  continually  frozen  zones,  where 
no  results  of  labor  are  embodied  in  or  reflected  upon  it; 
while,  on  the  other  hand,  its  tracts  of  greatest  value  are 
in  the  large  cities  and  marts  of  trade  and  commerce,  as  in 
the  vicinity  of  the  Bank  of  England,  or  in  Wall  Street, 
where  the  results  of  labour  are  so  concentrated  and  re- 
flected upon  land  that  it  is  necessary  to  cover  it  with  gold 
in  order  to  acquire  by  purchase  a  title  to  it  and  a  right  to 
its  exclusive  use.  The  difference  between  land  at  twenty- 
five  dollars  an  acre  and  twenty-five  dollars  a  square  foot 
is  simply  that  the  latter  is  or  may  be  in  the  near  future 
covered  or  surrounded  by  capital  and  business,  while  the 
former  is  remote  from  these  sources  of  value.  One  of  the 
greatest  possible,  perhaps  probable,  outcomes  of  the  mod- 
ern progress  of  chemistry  is  that  through  the  utilization 
of  microbic  organizations,  the  value  of  land  as  an  instru- 
mentality for  the  production  of  food  may  be  increased  to 
an  extent  that  at  the  present  time  is  hardly  possible  of  con- 
ception. Again,  in  the  case  of  air  and  water,  although 
their  total  absolute  quantity  can  not  be  increased,  their 
available  and  useful  quantity  in  any  place,  as  before 
shown,  can  be  by  the  agency  of  man,  and  their  use  made 
subject  to  hire  or  rent. 

Consideration  is  next  asked  to  the  question  at  issue 
from  what  may  be  termed  its  practical  standpoint.  We 
have  first  a  proposition  in  the  nature  of  an  economic  axiom, 
that  the  price  of  everything  necessary  for  production,  or 
the  hire  of  anything — land,  money,  and  the  like — without 
which  the  product  could  not  arise,  is,  and  must  be,  with- 
out exception,  a  part  of  the  cost  of  that  product;  second, 
that  all  levies  of  the  State  which  are  worthy  of  being  desig- 
nated as  taxes  constitute  an  essential  element  of  the  cost 
of  all  products.  The  rent  of  an  opera  box,  given  to  obtain 
a  mere  pleasure,  constitutes  a  part  of  the  fund  out  of  which 
the  musicians  are  paid,  and  if  they  are  not  so  paid  they 
will  not  play  or  sing.  The  rent  given  for  the  right  to  fish 
on  a  certain  part  of  a  river  or  its  shores  is  a  part  of  the 
cost  of  producing  the  fish  as  a  marketable  commodity.  If 
a  house  is  hired  for  the  purpose  of  conducting  any  busi- 
ness in  it,  the  price  of  that  hire  does  most  certainly  enter 
into  the  cost  of  that  business,  whatever  it  may  be,  assum- 
ing that  the  use  of  the  house  is  a  necessity  for  carrying  it 


594    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

on.  As  no  man  will  produce  a  commodity  by  which  he  is 
sure  to  lose  money,  or  fail  to  obtain  the  ordinary  rate  of 
profit,  the  tax  must  be  added  to  the  price,  or  the  production 
will  cease.  If  a  uniform  tax  is  imjjosed  on  all  land  occu- 
pied, it  will  be  paid  by  the  occu])icr,  because  occupation 
(house-building)  will  cease  until  the  rent  rises  sufficiently 
to  cover  the  tax.  The  landlord  assesses  upon  his  tenants 
the  tax  he  has  paid  upon  his  real  estate;  each  tenant 
assesses  his  share  upon  each  of  his  customers;  and  so  per- 
fect is  this  diffusion  of  land  taxation  that  every  traveller 
from  a  distant  part  of  the  country  who  spends  even  a  single 
day  at  a  hotel  pays,  without  stopping  to  think  about  it, 
a  portion  of  the  taxes  on  the  building,  first  paid  by  the 
owner,  then  assessed  upon  the  lessees,  and  next  cut  up  by 
them  minutely  in  the  per  diem  charge.  But  of  course 
neither  the  owner  nor  lessee  really  escapes  taxation,  be- 
cause a  portion  of  somebody  else's  tax  is  thrown  back 
upon  them. 

Is  it  possible  to  believe  that  in  a  city  like  New  York, 
where  less  than  four  per  cent  of  its  population  pay  any 
direct  tax  on  real  estate,  or  in  a  city  like  Montreal,  where 
the  expenses  of  the  city  are  mainly  derived  from  taxes  on 
land  and  the  building  occupancy  of  land,  the  great  major- 
ity of  the  inhabitants  of  those  cities  are  exempt  from  all 
land  taxation?  In  China,  where,  as  before  shown,  the  title 
or  ownership  of  all  land  vests  in  the  emperor,  and  the  rev- 
enue of  the  Government  is  almost  exclusively  derived  from 
taxation  of  land  in  the  form  of  rent,  does  the  burden  of 
tax  remain  upon  the  owner  of  the  land?  If  the  tax  in  the 
form  of  rent  is  paid  in  the  products  of  the  land,  as  un- 
doubtedly it  is  in  part,  will  not  the  cost  of  the  percentage 
of  the  whole  product  of  the  land  that  is  thus  taken  in- 
crease to  the  renter  the  cost  of  the  percentage  that  is  left 
to  him;  or,  if  the  product  is  sold  for  money  with  which  to 
pay  the  tax  rent,  will  not  its  selling  price  embody  the  cost 
of  the  tax,  as  it  will  the  cost  of  every  other  thing  necessary 
for  production?  To  affirm  to  the  contrary  is  to  say  that 
the  price  which  the  Chinese  farmer  pays  for  the  right  of  the 
exclusive  use  of  his  land  is  no  part  of  the  crops  he  may 
raise  upon  it. 

Consider  next  the  assertion  of  those  who  maintain  the 
non-diffusion  theory  that  taxes  on  land  are  paid  by  the 


LAND   TAX  COMPENSATED.  595 

owners  because  the  supply  of  land  can  neither  be  increased 
nor  diminished.  In  answer  to  it  we  have  the  indisputable 
fact  that  the  owners  of  land,  whenever  taxes  are  increased, 
attempt  to  obtain  an  increased  rental  for  it  if  the  circum- 
stances will  permit  it.  And  the  very  attempt  tends  to  in- 
crease the  rent.  JSTothing  but  adverse  circumstances,  such 
as  diminishing  population  or  commercial  and  industrial 
distress,  can  prevent  a  rise  in  the  rental  of  land  on  which 
the  taxes  are  increased;  and  in  the  case  of  dwellings  and 
warehouses  the  rise  is  almost  always  very  prompt,  l)ecause 
no  man  will  erect  new  dwellings  or  warehouses  unless 
their  rent  compensate  fully  the  increase  of  taxation.  And 
in  any  prosperous  community,  in  which  population  in- 
creases in  the  natural  ratio,  there  must  be  a  constant 
increase  of  dwellings  and  warehouses  to  prevent  a  rise  of 
rent,  independent  of  higher  wages  and  higher  taxation. 
In  no  other  occupation  is  capital  surer  of  obtaining  the 
average  net  remuneration  than  in  the  erection  of  dwell- 
ings and  warehouses,  and  nothing  but  lack  of  general  pros- 
perity and  diminishing  population  can  throw  the  burden  of 
taxation  on  real  estate  or  its  owners,  without  the  slightest 
attempt  at  combination  on  their  part.  If  the  owners  of 
land  are  not  reimbursed  for  its  taxation  by  its  occupants, 
new  houses  "  would  not  be  erected,  the  old  ones  would 
wear  out,  and  after  a  time  the  supply  would  be  so  small 
that  the  demand  would  raise  rents,  and  house  building 
begin  again,  the  tax  having  been  transferred  to  the  occu- 
pier." 

It  is  pertinent  at  this  point  to  notice  the  averment  that 
is  frequentl}^  made,  that  cultivators  of  the  soil  can  not 
incorporate  taxes  on  the  land  in  the  price  of  their  prod- 
ucts, because  the  price  of  their  whole  crop  is  fixed  by  the 
price  at  which  any  portion  of  it  can  be  sold  in  foreign 
markets.  In  answer  to  this  we  have  first  the  fact  that,  to 
give  the  population  of  the  world  an  adequate  supply  of 
food  and  other  agricultural  products,  it  is  not  only  neces- 
sary that  all  the  land  at  present  under  cultivation  shall 
continue  to  be  so  employed,  but  further  that  new  lands 
shall  each  year  be  brought  under  cultivation,  or  else  the 
land  already  cultivated  shall  be  made  more  productive. 

The  population  of  the  world  steadily  increases,  not- 
withstanding wars,  epidemics,  and  all  the  evils  which  are 


596    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

consequences  of  man's  ignorance  and  of  his  improper  use 
of  things,  his  own  faculties  included.  Hence,  in  case  of 
increased  taxation  on  land,  the  cultivator  of  the  soil  is 
generally  enabled  to  transfer  easily  and  promptly  the 
burden  of  the  tax  to  the  purchasers  of  the  products  he 
raises,  without  abandoning  the  cultivation  even  of  the 
least  productive  soil. 

Furthermore,  the  exports  of  many  agricultural  prod- 
ucts are  due  not  to  the  cheapness  of  their  cost  of  produc- 
tion, but  to  the  variations  which  occur  in  the  productive- 
ness of  the  crops  of  other  countries.  M.  Rouher,  a  French 
economist,  and  for  a  period  a  minister  of  commerce, 
thoroughly  investigated  this  matter,  and  proved  by  incon- 
testable data  that  almost  invariably  when  the  yield  of 
breadstuffs  in  Europe  was  large  in  the  country  drained  by 
the  Black  and  Baltic  Seas,  it  was  small  in  the  countries 
drained  by  the  Atlantic.  This  variation  in  the  yield  of 
agricultural  crops  forces  the  countries  where  crops  are 
deficient  to  purchase  from  those  where  they  are  abundant, 
or  who  have  a  surplus  on  hand  from  previous  abundant 
harvests.  In  the  United  States,  when  the  harvests  are 
abundant,  the  American  farmers,  rather  than  sell  below  a 
certain  price,  keep  a  portion  of  their  crops  on  hand  until 
bad  crops  in  Europe  produce  a  foreign  demand,  which  has  to 
be  supplied  at  once.  Under  such  circumstances  those  who 
hold  the  surplus  stock  of  breadstuffs,  or  any  other  product, 
would  control  the  price,  and  not  the  foreigners  who  stand 
in  need  of  it.  The  only  check,  then,  to  the  cupidity  of  the 
holders  of  breadstuffs  is  the  competition  among  them- 
selves, which  invariably  suffices  to  prevent  any  undue 
advantage  being  taken  of  the  necessities  of  the  countries 
whose  harvests  are  deficient.  These  bad  crops  occur  fre- 
quently enough  to  consume  all  the  surplus  of  the  countries 
that  produce  in  excess  of  their  own  wants.  In  fact,  this 
transient,  irregular  demand  is  counted  upon  and  provided 
for  by  producers  just  as  much  so  as  the  regular  home  de- 
mand— hence  is  one  of  the  elements  that  regulate  produc- 
tion and  control  prices. 

At  this  point  of  the  discussion  it  is  desirable  to  obtain 
a  clear  and  true  idea  of  the  meaning  or  definition  of  the 
phrase  "  diffusion  of  taxes."  As  sometimes  used  in  popu- 
lar and  superficial  discussions,  it  is  held  to  imply  that  every 


TAXATION  AND   CONSUMPTION. 


597 


tax  imposed  by  law  distributes  itself  equitably  over  the 
whole  surface  of  society.  Such  implication  would,  how- 
ever, be  even  more  fallacious  than  an  assumption  that  every 
expenditure  made  by  an  individual  distrilmtes  itself  in 
such  a  way  that  it  becomes  equally  an  expenditure  by 
every  other  individual.  On  the  other  hand,  a  fair  con- 
sideration of  the  foregoing  summary  of  facts  and  deduc- 
tions would  seem  to  compel  every  mind  not  previously 
warped  by  prejudice  to  accept  and  indorse  the  following 
as  great  fundamental  principles  in  taxation:  First,  that  in 
order  to  burden  equitably  and  uniformly  all  persons  and 
property,  for  the  purpose  of  obtaining  revenue  for  public 
purposes,  it  is  not  necessary  to  tax  primarily  and  uniformly 
all  persons  and  property  within  the  taxing  district.  Sec- 
ond, equality  of  taxation  consists  in  a  uniform  assessment 
of  the  same  articles  or  class  of  property  that  is  subject  to 
taxation.  Third,  taxes  under  such  a  system  equate  and 
diffuse  themselves;  and  if  levied  with  certainty  and  uni- 
formity upon  tangible  property  and  fixed  signs  of  property, 
they  will,  by  a  diffusion  and  repercussion,  reach  and  bur- 
den all  visible  property,  and  also  all  of  the  so-called  "  in- 
visible and  intangible  "  property,  with  unerring  certainty 
and  equality. 

All  taxation  ultimately  and  necessarily  falls  on  con- 
sumption; and  the  burden  of  every  man,  under  any  equi- 
table system  of  taxation  and  which  no  effort  will  enable 
him  to  avoid,  will  be  in  the  exact  proportion  or  ratio  which 
his  aggregate  consumption  maintains  to  the  aggregate  con- 
sumption of  the  taxing  district.  State,  or  community  of 
which  he  is  a  member. 

It  is  not,  however,  contended  that  unequal  taxation  on 
competitors  of  the  same  class,  persons,  or  things  diffuses 
itself  whether  such  inequality  be  the  result  of  intention  or 
of  defective  laws,  and  their  more  defective  administration. 
And  doubtless  one  prime  reason  why  economists  and  others 
interested  have  not  accepted  the  law  of  diffusion  of  taxes 
as  here  given  is  that  they  see,  as  the  practical  workings  of 
the  tax  systems  they  live  under,  or  have  become  practically 
familiar  with,  that  taxes  in  many  instances  do  seem  to  re- 
main on  the  person  who  immediately  pays  them;  and  fail 
to  see  that  such  result  is  due — as  in  the  case  of  the  taxa- 
tion of  large  classes  of  the  so-called  personal  property — to 


k 


P 


598    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

the  adoption  of  a  system  which  does  not  permit  of  equality 
in  assessment,  and  therefore  can  not  be  followed  by  any- 
thing of  equality  in  ditfusion.  Such  persons  may  not 
unfairly  be  compared  to  physicists,  who,  constantly  work- 
ing with  imperfect  instruments,  and  constantly  obtaining, 
in  consequence,  defective  results,  come  at  last  to  regard 
their  errors  as  in  the  nature  of  established  truths.* 

According  to  these  conclusions,  the  greatest  consumers 
must  be  the  greatest  taxpayers.  The  man  also  who  evades 
a  tax  clearly  robs  his  neighbours.     The  thief  "alsb  pays 


*  In  a  like  experience  the  Duke  of  Argyll,  in  his  work  The 
Unseen  Foundations  of  Society,  finds  an  explanation  of  the  so- 
called  theory  of  Kicardo,  that  the  rent  which  a  farmer  of  agricul- 
tural land  pays  as  the  price  of  its  hire — that  is  to  say,  the  price 
which  he  pays  for  the  exclusive  use  of  it — is  no  part  of  the  cost  of 
the  crops  he  may  raise  upon  it;  a  conclusion  that  can  not  be  pos- 
sibly true,  unless  it  be  also  true  that  rent  is  paid  for  something 
that  is  not  an  indispensable  condition  of  agricultural  production. 
"  Thus  rights  are  in  their  very  nature  impalpable  and  invisible. 
They  are  not  material  things,  but  relations  between  many  ma- 
terial things  and  the  human  mind  and  will.  The  right  of  exclusive 
use  over  land  is  a  thing  invisible  and  immaterial,  as  other  rights 
are,  and,  although  it  is,  and  has  been  since  the  world  began,  the 
basis  of  all  agricultural  industry,  it  is  a  basis  impalpable  and 
invisible,  whereas  the  material  visible  implements  and  tools,  whose 
work  depends  upon  it,  are  all  visible  and  palpable  enough,  and  all 
of  which  would  never  be  were  we  to  see  them  without  the  invisible 
rights  upon  which  they  depend.  All  of  the  former,  in  their  place 
and  order,  are  instruments  of  production ;  all  of  them  catch  the 
eye,  and  may  easily  engross  the  attention.  On  the  other  hand,  if 
we  are  induced  to  forget  those  other  elements,  which  are  equally 
essential  instruments  of  production,  merely  because  they  are  out 
of  sight,  then  our  deception  may  be  complete,  and  fallacies  which 
become  glaring  when  memory  and  attention  are  awakened  may  find 
in  our  half-vacant  minds  an  easy  and  even  a  cordial  reception." 

Adam  Smith  may  be  fairly  considered  as  having  fully  com- 
mitted himself  beyond  all  controversy  in  his  great  work.  The 
Wealth  of  Nations,  to  the  principle  that  taxes,  with  a  degree  of 
infallibility,  diffuse  themselves  when  they  are  levied  uniformly  on 
the  same  article;  and  he  even  goes  so  far  as  to  admit  that  a  tax 
upon  labour,  if  it  could  be  uniformly  levied  and  collected,  woidd  be 
diffused,  and  that  the  labourer  would  be  the  mere  conduit  through 
which  the  tax  would  pass  to  the  public  treasury.  Thus  he  says, 
"  While  the  demand  for  labour  and  the  price  of  provisions,  there- 
fore, remain  the  same,  a  direct  tax  upon  wages  can  have  no  other 
efTect  than  to  raise  them  somewhat  higher  than  the  tax." 

The  German  economist  Bluntschli,  who  has  carefully  studied 
this  question  of  the  final  incidence  of  all  just  and  equitable  taxes, 


ALL   PAY  TAXES.  599 

taxes  indirectly,  for  he  is  a  consumer,  and  must  pay  the  ad- 
vanced price  caused  by  his  own  roguery  for  all  he  con- 
sumes, although  he  does  steal  the  money  to  pay  with. 
Idlers  and  even  tramps  pay  taxes,  but  the  amount  that 
they  indirectly  pay  into  the  fund  is  much  less  than  they 
take  out  of  it.  People  are  sometimes  referred  to  or  char- 
acterized as  non-taxpayers,  and  in  political  harangues  and 
socialistic  essays  measures  or  policies  are  recommended  by 
which  certain  persons  or  classes,  by  reason  of  their  ex- 
treme poverty,  shall  be  entirely  exempt  from  all  incidence 
or  burden  of  taxation.     Such  a  person  does  not,  however. 


is  in  substantial  agreement  with  the  above  conclusions,  but  pre- 
fers to  use  a  different  term  for  characterizing  such  finality  than 
consumption,  and  expresses  himself  as  follows:  "In  the  end  taxes 
fall  on  enjoyments.  Hence  the  amount  of  each  man's  enjoyments 
and  not  his  income  is  the  justest  measure  of  taxation." — Bluntschli, 
vol.  X,  p.  lJf6. 

M.  Thiers,  the  French  statesman  and  economist,  was  also  a 
believer  and  earnest  advocate  of  tlie  theory  of  the  diffusion  of 
taxes,  and  lays  down  his  principles  in  the  following  words:  "Taxes 
are  shifted  indefinitely,  and  tend  to  become  a  part  "if  the  price  of 
commodities,  to  such  an  extent  that  every  one  bears  his  share,  not 
in  proportion  to  what  he  pays  the  state,  but  in  proportion  to  what 
he  consumes."  And  in  his  book  Rights  to  Property  he  thus  illus- 
trates the  method  in  which  taxation  diffuses  itself:  "In  the  same 
manner  as  our  senses,  deceived  by  appearances,  tell  us  that  it  is  the 
sun  which  moves  and  not  the  earth,  so  a  particular  tax  appears  to 
fall  upon  one  class,  and  another  tax  upon  another  class,  when  in 
reality  it  is  not  so.  The  tax  really  best  suited  to  the  poorest  mem- 
ber of  society  is  that  which  is  best  suited  to  the  general  fortune  of 
the  state ;  a  fortune  which  is  much  more  for  the  possession  and 
enjoyment  of  the  poor  man  than  it  is  for  the  rich ;  a  fact  of  which 
we  are  never  sufficiently  convinced.  But  of  the  manner,  neverthe- 
less, in  which  taxes  are  divided  among  the  different  classes  of  the 
state,  the  most  certain  thing  we  can  say  is:  That  they  are  divided 
in  proportion  to  what  each  man  consumes,  and  for  a  reason  not 
generally  recognised  or  understood,  namely,  that  taxes  are  re- 
flected, as  it  were,  to  infinity,  and  from  reflection  to  reflection  be- 
come eventually  an  integral  part  of  the  prices  of  things.  Hence 
the  greatest  yjurchasers  and  consumers  are  everywhere  the  greatest 
taxpayers.  This  is  what  I  call  '  diffusion  of  taxation,'  to  borrow 
a  term  from  physical  science,  which  applies  the  expression  '  dif- 
fusion of  light '  to  those  numberless  reflections,  in  consequence  of 
which  the  light  which  has  penetrated  the  slightest  aperture  spreads 
itself  around  in  every  direction,  and  in  such  a  manner  as  to  reach 
all  the  objects  which  it  renders  visible.  So  a  tax  which  at  first 
sight  appears  to  be  paid  directly,  in  reality  is  only  advanced  by  the 
individual  who  is  first  called  upon  to  pay  it," 


600    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

f exist  in  any  civilized  community.     If  one  could  be  found 
he  would  be  a  greater  curiosity  than  exists  in  any  museum. 
To  avoid  taxation  a  man  must  go  into  an  unsettled  wilder- 
ness where  he  has  no  neighbours,  for  as  soon  as  he  has  a 
companion,  if  that  companion  be  only  a  dog,  which  he  in 
:  part  or  all  supports,  taxation  begins,  and  the  more  com- 
"panions  he  has,  the  greater  improvements  he  makes,  and 
I  the  higher  civilization  he  enjoys,  the  heavier  will  be  the 
taxes  he  must  pay. 

Taxes  legitiinalely  levied,  then,  are  a  part  of  the  cost  of 
all  production,  and  there  can  be  no  more  tendency  for 
taxes  to  remain  upon  the  persons  who  immediately  pay 
them  than  there  is  for  rents,  the  cost  of  insurance,  water 
supply,  and  fuel  to  follow  the  same  law.  The  person  who 
wishes  to  use  or  destroy  the  utility  of  property  by  con- 
sumption to  gratify  his  desires,  or  satisfy  his  wants,  can 
not  obtain  it  from  the  owners  or  producers  with  their  con- 
sent, except  by  gift,  without  giving  pay  or  services  for  it; 
and  the  average  price  of  all  property  is  coincident  with  the 
cost  of  production,  including  the  taxes  advanced  upon  it, 
which  are  a  part  of  its  cost  in  the  hands  of  the  seller. 
Again,  no  person  who  produces  any  form  of  property  or 
utility,  for  the  purpose  of  sale  or  rent,  sustains  any  bur- 
den of  legitimate  taxation,  although  he  may  be  a  tax  ad- 
vancer; for,  as  a  tax  advancer,  he  is  the  agent  of  the  State, 
and  a  tax  collector  from  the  consumer.  But  he  who  pro- 
duces or  buys,  and  does  not  sell  or  rent,  but  consumes,  is 
the  taxpayer,  and  sustains  a  tax  in  his  aggregate  consump- 
tion, where  all  taxation  must  ultimately  rest.  In  short, 
no  person  bears  the  burden  of  taxation,  under  an  equita- 
ble, legitimate  system,  except  upon  the  property  which  he 
applies  to  his  own  exclusive  use  in  ultimate  consumption. 
The  great  cousuhht  is  tlio  only  great  taxpayer. 

Finally,  a  great  economic  law  })ointecl  out  by  Adam 
Smith,  which  has  an  important  and  almost  conclusive  bear- 
ing upon  this  vexed  problem  of  the  diffusion  of  taxes, 
should  not  be  overlooked — namely,  his  statement  in  The 
Wealth  of  Nations  that  "  no  tax  can  ever  reduce  for  any 
considerahle  time  the  rate  of  profit  in  any  particular  trade, 
wliicli  must  always  Tceep  its  level  with  other  trades  in  the 
neighbourhood."  In  other  words,  taxes  and  profits,  by  the 
operation  of  the  laws  of  human  nature,  constantly  tend  to 


LEVEL  OF  TAXATION.  601 

equate  themselves.  Man  is  always  prompted  to  engage  in 
the  most  profitable  occupation  and  to  make  the  most  prof- 
itable investment.  And  since  the  emancipation  from 
feudalism  with  its  sumptuary  laws,  legal  regulations  of  the 
price  of  labour  and  merchandise,  and  other  arbitrary  gov- 
ernmental invasions  of  private  rights,  individual  judgment 
and  self-interest  have  been  recognised  as  the  best  tests  or 
arbiters  of  the  profitableness  of  a  given  investment  or 
occupation.  The  average  profits,  therefore,  of  one  form 
of  investment,  or  of  one  occupation  (as  originally  shown  by 
Adam  Smith),  must  for  any  long  period  equal  the  average 
profits  of  other  investments  and  occupations,  whether 
taxed  or  untaxed,  skill,  risk,  and  agreeableness  of  occu- 
pation being  taken  into  consideration.*  Natural  laws 
will,  accordingly,  always  produce  an  equilibrium  of 
burden  between  taxed  and  untaxed  things  and  persons. 
There  is  a  level  of  profit  and  a  level  of  taxation  by 
natural  laws,  as  there  is  a  level  of  the  ocean  by  natural 

*  As  applied  to  the  wages  of  labour,  the  truth  of  this  principle 
is  equally  incontestable.  "  The  sewing  girl  performing  her  toilsome 
work  by  the  needle  at  one  dollar  a  day,  the  street  sweeper  working 
the  mud  with  his  broom  at  a  dollar  and  a  half,  the  skilled  labourer 
at  two  and  three  dollars,  the  professor  at  five,  the  editor  at  five 
or  ten,  the  artist  and  the  songstress  at  ten  or  five  hundred  dollars 
a  day  are  all  members  of  the  working  classes,  though  working  at 
diflTerent  rates.  And  it  is  only  the  difference  in  their  effectiveness 
that  causes  the  difference  in  their  earnings.  Bring  them  all  to  the 
same  point  of  efficiency,  and  their  earnings  also  will  be  the  same." 
— W.  Jungst,  Cincinnati. 

John  Locke,  in  his  treatise  On  the  Standard  of  Value,  treats 
of  taxation,  and  shows  conclusively  that  if  all  lands  were  nominally 
free  from  taxation,  the  owners  of  lands  would  proportionally  pay 
more  taxes  than  now,  because  the  same  amount  of  money  must 
continue  to  be  collected  in  some  form,  and  the  average  profits  of 
lands  would  only  be  equal  to  the  average  profits  of  other  invest- 
ments; and  further,  that  the  expense  and  annoyance  (another  form 
of  expense)  would  be  increased  if  the  tax  were  exclusively  levied 
in  the  first  instance  upon  personal  property ;  and  hence  the  land- 
owner would  be  burdened  with  his  proportion  of  the  unnecessary 
expense  and  annoyance.  He  also  shows  that  you  may  change 
the  form  of  a  uniform  tax,  but  that  you  can  not  change  the  burden ; 
and  that  the  change  will  increase  the  burden,  if  the  new  system  is 
more  expensive  and  annoying  than  the  old.  Locke  wrote  nearly  a 
century  before  Adam  Smith  published  his  Wealth  of  Nations,  and 
it  would  seem  probable  that  Smith  acquired  his  ideas  relative  to 
the  average  profits  of  investments  from  Locke.        .       . 

i       =».  ,  .  "^^  v., 


602    THE  THEORY  AND  PRACTICE   OF  TAXATION. 

laws.  In  fact,  all  proportional  contributions  to  the  State 
from  direct  competitors  are  diffused  upon  persons  and 
things  in  the  taxing  jurisdiction  by  a  uniformity  as  mani- 
fest as  is  the  pressure  upon  water,  which  is  known  to  be 
equal  in  every  direction. 

A  word  here  in  reference  to  the  popular  idea  that  the 
exemption  of  any  form  of  property  is  to  grant  a  favour  to 
those  who  possess  such  property.  This  idea  has,  however, 
no  warrant  for  its  acceptance.  Thus,  an  exemption  is 
freedom  from  a  burden  or  service  to  which  others  are 
liable;  but  in  case  of  the  exclusion  of  an  entire  class  of 
property  from  primary  taxation,  no  person  is  liable,  and 
therefore  there  is  no  exemption.  An  exclusion  of  all 
milk  from  taxation,  while  whisky  is  taxed,  is  not  an  ex- 
emption, for  the  two  are  not  competing  articles,  or  articles 
of  the  same  class.  It  is  true  that  highly  excessive  taxa- 
tion of  a  given  article  may  cause  another  and  similar 
article,  in  some  instances,  to  become  a  substitute  or  com- 
peting article;  and  hence  the  necessity  of  care  and  moder- 
ation in  establishing  the  rate  of  taxation.  We  do  not 
consider  that  putting  a  given  article  into  the  free  list, 
under  the  tariff,  is  an  exemption  to  any  particular  indi- 
vidual; but  if  we  make  the  rate  higher  on  one  taxpayer  or 
on  one  importer  of  the  same  article  than  on  another  tax- 
payer or  importer,  we  grant  an  exemption.  We  use  the 
word  "  exemption,"  therefore,  imperfectly,  when  we  speak 
of  "  the  exemption  of  an  entire  class  of  property,"  as,  for 
example,  upon  all  personal  property;  for  if  the  removal  of 
the  burden  operates  uniformly  on  all  interested,  or  owning 
such  property,  then  there  can  be  no  primary  exemption. 


CHAPTER    XXVII. 

THE    BEST    METHODS    OF    TAXATION. 
PART    I. 

This  historical  survey  of  tax  experience  among  peoples 
widely  differing  in  their  economic  condition  and  social  rela- 
tions, and  this  examination  of  the  scope  and  practice  of 
taxation,  with  especial  reference  to  the  tax  systems  of  the 
United  States  as  defined  and  interpreted  by  judicial  au- 
thority, prepare  the  way  for  a  discussion  of  the  best 
methods  of  taxation  for  a  country  situated  as  is  the  United 
States.  General  as  are  the  theoretical  principles  under- 
lying taxation,  the  application  of  these  principles  to  exist- 
ing conditions  must  be  modified  to  meet  the  long  usage  and 
inherited  prejudice  of  the  people,  and  the  form  of  produc- 
tion or  manner  of  distributing  wealth.  This  holds  true 
in  the  face  of  appearances  so  opposed  to  it  as  to  defy  defi- 
nition and  acceptance.  No  less  promising  field  for  an 
income  tax  can  be  pictured  than  British  India,  and  few 
more  promising  fields  than  France.  Yet  India  has  borne 
such  a  tax  for  years,  while  France  will  not  permit  a  true 
tax  on  income  to  be  adopted  as  a  part  of  its  revenue  system. 
In  the  latter  country  the  plea  is  made  that  the  upper  and 
middle  classes  already  pay  under  other  forms  of  taxation 
more  than  their  due  proportion  of  the  public  burdens,  and 
an  additional  and  necessarily  discriminating  duty  laid 
upon  them  will  only  make  this  inequality  the  greater. 
Class  interest  may  thus  oppose  its  veto  to  a  change  that 
promises  to  reduce  the  burdens  of  one  class  of  taxpayers 
at  the  expense  of  another;  or  may  even  oppose  a  change 
that  offers  the  chance  of  collecting  a  larger  revenue  with 
less  real  difficulty  and  sacrifice  on  the  part  of  the  taxed. 
No  opposition  can  set  aside  even  temporarily  the  great 
rules  that  clearly  define  a  tax  from  tribute,  a  legal  and 
beneficial  taking  by  the  state  of  a  certain  part  of  the  public 

603 


604    THE  THEORY  AND   PRACTICE  OF  TAXATION. 

wealth  from  a  demand  that  involves  waste  or  mischievous 
expenditure,  for  which  the  state  or  people  derive  no 
advantage  commensurate  with  the  cost,  or  from  which 
individuals  obtain  a  gain  not  defensible  in  justice,  and  at 
the  ex})ense  of  only  one  part  of  the  community. 

After  so  many  centuries  of  experiment,  in  which 
hardly  a  possible  source  of  state  revenue  has  escaped  atten- 
tion, some  knowledge  of  the  great  principles  of  taxation 
might  have  been  evolved.  Unfortunately,  the  experience 
of  one  nation  is  not  accepted  as  containing  lessons  applica- 
ble to  the  needs  or  conditions  of  another,  and  one  genera- 
tion rarely  appeals  to  history  save  to  defend  its  own  experi- 
ments. Ignorance,  half  knowledge,  which  is  quite  as 
dangerous,  and  interest  guide  or  influence  legislation,  and 
those  who  predict  failure  or  danger  are  regarded  as  the- 
orists, and  denounced  as  unpractical.  Nowhere  is  the 
tendency  to  move  independent  of  enlightened  knowledge 
more  evident  than  in  the  United  States.  At  every  appear- 
ance of  the  tax  question.  State  and  national  legislatures 
are  overwhelmed  with  measures  that  have  been  tried  in 
the  past,  and  after  a  thorough  test  condemned  beyond  any 
hope  of  defence. 

Yet  history  shows  the  gradual  disappearance  of  certain 
forms  of  taxation  which  enjoyed  great  popularity  for  a 
time,  and  accomplished  the  end  of  their  creation  in  a  crude 
and  often  cruel  manner.  Looking  over  long  periods  of 
time,  it  is  seen  that  some  advances  have  been  made,  rather 
from  a  change  in  the  economic  condition  of  the  people 
than  from  a  true  appreciation  of  the  principles  in  question. 
The  development  of  popular  liberty  has  been  an  essential 
factor,  and  the  alterations  in  tax  methods  require  a  close 
analysis  of  the  causes  leading  to  the  rise  and  dominance  of 
political  and  constitutional  principle.  While  it  is  true 
that  a  popular  uprising  against  fiscal  exactions  usually 
marked  the  limit  of  endurance  of  an  oppressive  system,  it 
is  also  true  that  the  same  uprisings  marked  the  completion 
of  one  stage  of  political  development,  and  the  readiness  or 
even  the  need  of  entering  upon  a  new  stage.  In  one  sense 
the  progress  of  a  people  toward  civilization  in  its  highest 
meaning  may  be  illustrated  by  its  fiscal  machinery  and 
methods  of  obtaining  its  revenue  from  the  people.  It  will 
be  of  interest  to  glance  at  some  of  these  passing  phases 


FARMED   REVENUES  AND  LOTTERIES.  605 

which  have  generally  come  down  to  a  late  day,  and  are 
still  to  be  found  in  activity  in  some  of  the  most  advanced 
states  of  Europe. 

The  practice  of  farming  out  the  revenues  of  a  state  or 
any  part  of  it  has  become  nearly  obsolete,  and  where  it 
does  exist  is  the  mark  of  a  fiscal  machinery  as  yet  not  fully 
developed.  The  opportunities  and  temptation  which  the 
contract  system  oifered  for  oppressing  the  taxpayers  were 
apparent  long  before  the  state  was  in  a  position  to  assert 
its  ability  to  make  its  own  collections.  In  France  the 
fermiers  generaux  were  a  political  factor,  standing  between 
the  king  and  his  people,  regarded  as  necessary  to  the  former 
and  as  oppressors  of  the  latter.  Their  unpopularity,  in 
part  justified  by  their  conduct,  was  a  not  unimportant  item 
in  the  arraignment  of  royalty  by  the  people.  Wherever 
introduced,  the  farming  of  taxes  proved  in  the  long  run  as 
unwise  politically  as  it  was  unprofitable  financially;  and 
the  only  reasonable  defence  for  adopting  it  was  the  want  of 
strength  in  the  state  to  command  its  own  revenue — a  want 
as  likely  to  arise  from  the  dishonesty  of  its  agents  as  from 
a  political  weakness.  In  early  times  the  most  universal 
manner  of  supplying  the  treasury  of  the  state,  the  farming 
of  taxes  has  now  become  so  rare  as  to  be  classed  as  a  curi- 
osity. Italy  still  employs  this  machinery  to  collect  her 
taxes  on  tobacco,  and  Spain  from  necessity  has  mortgaged 
her  taxes  to  the  bank,  with  the  task  of  collecting  them. 

Of  the  same  general  character  are  the  state  lotteries, 
of  which  some  few  and  quite  important  instances  may  still 
be  found  in  action.  Of  the  immorality  of  these  instru- 
ments there  can  be  little  doubt,  and  there  is  quite  as 
unanimous  an  opinion  as  to  their  inefficiency  as  fiscal  in- 
struments. Yet  it  is  only  within  very  recent  years  that 
state  lotteries  have  been  discarded  even  in  the  most  ad- 
vanced countries.  The  machinery  of  lotteries  has  often 
been  modified,  but,  no  matter  how  altered  in  details,  they 
all  have  appealed  to  the  love  of  games  of  chance.  Adam 
Smith  asserted  that  the  "  absurd  presumption  "  of  men  in 
their  own  good  fortune  is  even  more  universal  than  the 
overweening  conceit  which  the  greater  part  of  men  have  in 
their  own  abilities.*     Yet  another  assertion  of  the  same 

*  Wealth  of  Nations,  vol.  i,  p.  112  (Roger's  edition). 


606    THE   THEORY  AND  PRACTICE  OF  TAXATION. 

writer  is  as  true:  "The  world  neither  ever  saw,  nor  ever 
will  see,  a  perfectly  fair  lottery,  or  one  in  which  the  whole 
gain  compensated  the  whole  loss."  Where  the  state 
undertakes  it,  there  is  a  profit  generally  assured  to  the 
state,  but  that  profit  is  by  no  means  certain,  and  can  not 
make  good  the  demoralization  introduced  among  the  peo- 
ple. State  lotteries  are  still  a  part  of  the  revenue  system 
in  Italy  and  Austria  (proper),  where  the  receipts  are  im- 
portant, but  show  a  decided  tendency  to  diminish;  Hun- 
gary and  Denmark,  where  they  are  of  little  moment;  and 
in  Spain,  where  they  are  retained  because  of  the  general 
incapacity  of  the  administration  to  reach  other  and  more 
profitable  sources  of  revenue.  The  experience  of  the  State 
of  Louisiana  in  connection  with  a  State  lottery  is  too 
recent  to  require  examination.  It  is  not  probable  that 
once  abandoned  such  an  instrument  for  obtaining  money 
from  the  people  will  be  revived,  save  as  a  last  resort. 

The  State  monopoly  in  the  manufacture  and  sale  of  an 
article  for  fiscal  purposes  holds  a  place  of  high  importance 
in  European  countries,  and  is  met  elsewhere  under  condi- 
tions not  so  favourable  to  its  maintenance.  As  an  example 
of  the  latter  may  be  cited  the  colonial  policy  of  the  Dutch 
in  their  possessions  in  the  East.  After  the  termination 
of  the  trading  companies,  the  Government  undertook  the 
entire  control  of  the  colonies,  and  sought  to  make  them  a 
source  of  revenue.  The  natives  were  to  be  taxed,  but, 
having  little  of  their  own  to  be  taxed,  and  practising  no 
occupation  that  could  of  its  own  volition  become  a  profit- 
able source  of  revenue,  the  state  undertook  to  organize 
industry,  and,  by  creating  an  opportunity  for  employing 
the  labour  of  the  natives,  to  receive  the  profits  of  produc- 
tion for  its  own  uses.  The  native  chiefs  were  made  "  mas- 
ters of  industry  "  and  collectors  of  the  revenue;  and  a  cer- 
tain part  of  the  labour  of  the  natives,  one  day  in  every  five, 
was  decreed  to  the  state.  In  order  to  derive  a  profit,  this 
labour  must  be  bestowed  in  cultivating  some  product  that 
finds  a  market  in  international  trade.  Hence  arose  the 
importance  of  the  sugar,  coffee,  tobacco,  and  spice  crops  of 
these  Dutch  islands,  and  for  many  years  a  handsome  profit 
to  the  treasury  was  obtained  from  the  management  and 
sales  of  product.  With  the  great  fall  in  the  prices  of 
sugar  and  coffee  throughout  the  world,  and  the  narrowing 


STATE  MONOPOLIES.  607 

of  the  market  for  cane  sugar,  the  Government  obtained  a 
less  income  each  year,  and  has  found  it  of  advantage  to 
relax  the  conditions  surrounding  cultivation,  and  to  throw 
the  management  of  the  plantations  more  and  more  into 
private  hands.  To  such  an  extent  has  this  transition  been 
effected  that  the  state  can  no  longer  be  considered  as  con- 
trolling a  monopoly  in  product  or  sales,  and  is  content 
with  a  revenue  from  other  sources,  one  that  does  not  even 
cover  the  expenses  incurred  in  the  colonial  system.  This 
experiment  differs  widely  from  those  industries  under- 
taken with  the  aid  or  encouragement  of  the  state  to  be 
found  in  India.  It  was  not  with  a  fiscal  object  that  they 
were  established,  and  not  infrequently  the  state  sacrifices 
revenue  by  releasing  them  from  tax  burdens  they  would 
ordinarily  endure.  As  one  of  the  few  remaining  instances 
of  the  direct  participation  of  a  state  in  the  production  of 
products  intended  for  foreign  markets,  yet  undertaken 
and  maintained  for  fiscal  reasons,  the  history  of  the  Dutch 
colonies  in  the  East  is  instructive. 

In  Prussia  the  working  of  certain  mines  is  in  the  hands 
of  the  state,  and  was  originally  looked  upon  as  an  im- 
portant contribution  to  the  income  of  the  state.  As  in  the 
Dutch  experience,  the  changes  in  production  throughout 
the  world  have  greatly  reduced  the  returns  and  made  the 
income  variable;  yet  there  is  little  disposition  to  dispose 
of  these  possessions.  "  The  danger  of  mineral  supplies 
being  worked  in  a  reckless  and  extravagant  manner  with- 
out regard  to  the  welfare  of  future  generations,  and  the 
dread  of  combinations  by  the  producers  of  such  commodi- 
ties as  tin,  copper,  and  salt,  with  the  aim  of  raising  prices, 
have  both  tended  to  hinder  the  alienation  of  state 
mines."  * 

The  more  common  form  of  state  monopoly  is  that 
which  occupies  a  middle  position,  established  for  reasons 
of  public  safety  or  utility  as  well  as  of  revenue.  The  salt 
monopoly  enforced  in  Prussia  was  only  abolished  in  1867, 
and  is  still  maintained  in  every  canton  of  Switzerland. 
The  strongest  plea  in  its  defence  has  been  the  g^^arantee 
by  the  state  of  the  purity  of  the  article  sold,  and  this  phase 
of  the  question  has  superseded  the  revenue  aspect.     Few 

*  Bastable.     Public  Finance,  p.  181. 


608    THE   THEORY   AND   PRACTICE   OF  TAXATION. 

articles  of  prime  necessity,  like  salt,  are  subject  to  monopo- 
lies imposed  by  the  state,  and  by  a  process  of  elimination 
it  is  only  articles  of  luxury  or  voluntary  consumption  that 
are  regarded  as  fit  objects  of  monopoly  for  the  benefit  of 
the  state. 

A  tax  miposed  upon  an  article  at  a  certain  stage  of  its 
production  or  manufacture  may  enforce  the  expediency 
or  necessity  of  a  state  monopoly.  Where  the  supervision 
of  the  state  agents  must  be  so  close  as  to  interfere  with  the 
conduct  of  the  industry,  the  state  intervenes  and  itself 
controls  the  manufacture  and  sale.  Tobacco  has  long 
been  subject  to  this  fiscal  regime,  and,  proving  so  produc- 
tive of  revenue,  there  is  little  to  be  said  against  a  monop- 
oly by  the  state  of  its  manufacture  and  sale. 

In  Italy  the  tobacco  monopoly  is  conceded  to  a  com- 
pany, but  its  return  of  net  revenue  to  the  state  is  nearly 
as  large  as  the  revenue  derived  from  the  taxes  on  real 
property  (about  thirty-eight  million  dollars  a  year).  Prus- 
sia imposes  a  charge  on  the  home-grown  tobacco  by  a  tax 
on  the  land  devoted  to  its  culture,  but  the  return  is  very 
small,  and  Bismarck  wished  to  introduce  a  true  tobacco 
monopoly,  modelled  on  that  of  France.  But  the  condi- 
tions were  opposed  to  his  scheme,  for  the  use  of  tobacco 
is  general  throughout  the  empire,  and  a  proposition  to  in- 
crease its  price  by  taxation  or  modify  its  free  manufacture 
and  distribution  excited  a  widespread  opposition.  France 
maintains  a  full  monopoly,  and  finds  it  too  profitable  to  be 
lightly  set  aside  unless  some  equally  profitable  source  of 
revenue  is  discovered  to  make  good  the  loss  its  abolition 
would  involve. 

While  historical  support  is  given  to  the  maintenance  of 
a  monopoly  as  in  France,  it  is  not  probable  that  the  system 
will  find  imitators  in  other  states,  however  tempting  the 
returns  obtained  might  seem.  Great  Britain  has  by  her 
insular  position  solved  the  problem  in  another  way.  By 
interdicting  the  domestic  cultivation  of  tobacco,  all  that  is 
consumed  must  be  imported,  and  a  customs  duty  ofl^ers  a 
ready  instrument  for  making  the  plant,  in  whatever  form 
it  enters,  contribute  its  dues  to  the  exchequer.  In  Eussia, 
as  in  the  United  States,  where  tobacco  is  a  domestic  prod- 
uct, the  tax  is  imposed  upon  its  manufacture,  and  this 
method  requires  supervision  but  no  monopoly  of  the  state. 


I 


TRANSIT  DUES.  609 

The  tobacco  regime  is  defended  almost  entirely  on  fiscal 
grounds,  and  as  a  monopoly,  an  extreme  measure,  has 
proved  its  value  as  an  instrument  of  taxation.  Other 
reasons,  of  a  moral  character,  are  urged  to  induce  the  state 
to  monopolize  the  manufacture  and  sale  of  distilled  spirits. 
Both  France  and  Germany  have  considered  this  question, 
and,  in  spite  of  confident  predictions  of  a  large  profit,  have 
decided  not  to  undertake  it.  Russia,  on  the  other  hand, 
has  taken  it  up  quite  as  much  on  social  as  on  revenue 
grounds,  and  is  gradually  securing  a  monopoly  of  the  trade 
in  spirits.  The  initial  cost  of  the  undertaking  is  large, 
and,  as  the  system  has  not  yet  been  perfected,  it  is  too 
early  to  give  a  judgment  on  its  availability  as  a  financial 
instrument. 

The  transit  dues,  once  commonly  used  by  different 
countries,  have  been  generally  abandoned,  and  in  China 
must  they  be  sought  for  in  their  original  forms  of  vexa- 
tious and  unprofitable  force.  They  arose  from  a  desire  to 
derive  some  benefit  from  a  commerce  permitted  grudging- 
ly, and  rarely  attaining  any  high  results.  The  same  end 
was  sought  by  duties  on  exports,  much  employed  when  the 
country  was  supposed  to  be  drained  of  its  wealth  by  what 
was  sent  out  of  it.  The  conditions  necessary  for  a  suc- 
cessful duty  on  exports  are  not  often  found,  and  only  in  a 
few  countries  are  they  now  existent.  In  Italy,  South 
America,  and  Asia,  exports  of  certain  natural  products  are 
taxed,  and,  as  in  the  case  of  Brazil,  yield  a  notable  revenue. 
In  view  of  the  rapid  advancement  of  production  in  new 
countries  and  of  inventions  in  the  old,  whereby  many  natu- 
ral monopolies  have  been  destroyed  and  competition  made 
more  general,  such  duties  prove  to  be  more  obstructive  to 
trade  than  productive  of  revenue,  and  are  rapidly  being 
abandoned.  In  spite  of  a  formal  prohibition  of  export 
duties  in  the  Constitution  of  the  United  States,  they  are 
sometimes  suggested  in  all  seriousness. 

In  thus  clearing  the  path  of  what  may  be  called  dead  or 
dying  methods  of  recent  tax  systems,  the  advantages  en- 
joyed by  the  United  States  in  their  freedom  from  such  sur- 
vivals become  more  evident.  The  practice  of  farming 
taxes  never  gained  a  foothold  in  any  part  of  the  country. 
Lotteries  have  been  occasional,  and  with  two  exceptions 
have  been  conducted  on  a  limited  scale — that  of  Louisiana 


610    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

is  well  known;  an  earlier  instance  is  less  known.  During 
the  Eevolution  one  of  the  means  resorted  to  by  the  Conti- 
nental Congress  for  income  was  a  lottery,  but  the  attempt 
proved  disastrous  to  all  concerned,  and  was  finally  aban- 
doned even  more  thoroughly  than  was  the  continental  cur- 
rency. State  monopolies  of  production  and  sale  of  any 
commodity  have  never  met  with  favour,  and  stand  con- 
demned in  the  desire  for  individual  initiative.  As  sources 
of  revenue,  the  public  lands,  state  control  of  the  post  of- 
fice, and  of  such  municipal  undertakings  as  the  water  and, 
in  a  very  few  cases,  the  gas  supply,  has  been  employed,  and 
in  place  of  profit  the  mere  cost  of  management  is  sought. 
More  than  any  country  of  continental  Europe,  the  United 
States  has  depended  upon  taxes,  pure  and  simple,  unsup- 
ported or  modified  by  state  domains,  state  mines,  state 
manufactures,  or  state  monopolies.  Even  Great  Britain 
in  her  local  taxation  is  bound  and  hampered  by  precedent, 
and  pursues  a  system  that  is  notoriously  confused,  costly, 
and  vexatious.  Long  usage  and  the  erection  of  independ- 
ent and  conflicting  authorities  on  principles  other  than 
fiscal  have  imposed  upon  the  local  agents  the  duty  of  as- 
sessing and  collecting  county  and  borough  taxes  which 
are  as  indefensible  in  theory  as  they  are  difficult  in 
practice. 

From    this    weight    of    tradition    and    precedent    the 
United  States  has  been  almost  entirely  free,  and  it  was 
possible  to  construct  out  of  small  beginnings  systems  of 
Federal  and  State  taxation  at  least  reasonable  and  con- 
sistent, producing  an  increasing  revenue  with  the  rapid 
development  of  wealth  and  the  larger  number  of  taxable 
objects;  and   so   elastic  as   to   adapt   themselves   to   such 
changes  as  are  inevitable  in  any  progressive  movement  of 
<  commerce  or  industry.     That  no  such  system  has  resulted 
^   J  after  a  century  of  national  life,  and  an  even  longer  term 
(W'y      of  local  (colonial  and  State)  activities,  these  papers  have 
a)        tended  to  show.     That  the  time  is  at  hand  when  the  prob- 
w      v/     ■'    lem  of  a  thorough  reform  of  both  State  and  Federal  taxa- 
\v^    '^jS^  ^^°^  miist  be  met,  current  fact's  prove  beyond  any  doubt. 
X-'-'^ry       If  I  have  aided  in  a  proper  comprehension  of  these  prob- 
V^        lems,  and,  by  collecting  certain  experiences  in  taxation 
^  among  other  peoples  and  in  different  stages  of  civilization, 

contributed  toward  a  proper  solution,  the  end  of  this  work 


V 


CONDITIONS  IN  THE  UNITED  STATES.  611 

will  have  been  attained.  It  is  not  possible  to  introduce  a 
complete  change  of  policy  at  once;  it  is  not  only  feasible 
but  necessary  to  indicate  the  direction  this  change  should 
take,  and  the  ends  to  be  secured  in  making  them.  And 
first  as  to  Federal  taxation: 

In  a  democracy  like  that  of  the  United  States,  the 
continuance  of  a  mixed  system  of  direct  and  indirect  taxes 
is  a  foregone  conclusion.     Not  that  there  is  an  absence  of 
change  or  modification  in  the  details  of  this  double  system, 
or  in  the  application  or  distribution  of  a  particular  impost 
or  duty.     To  deny  such  modification  is  to  deny  any  move- 
ment in  the  body  politic,  or  any  progress  in  the  industrial       ;~ 
and  commercial  economy  of  the  people.     There  is  a  steady       '^ 
and  continuous  movement  in  every  direction,  and  the  mere       '-  " 
effort  to  escape  taxation  results  in  a  new  adjustment  of 
related  facts.     This  development  has,  partly  through  ne-      ^'^ 
cessity  and  partly  through  a  rising  consciousness  of  what      ''. 
a  tax  implies,  been  tending  from  indirect  to  direct  taxes. 
Ever  restive  under  a  rigid  supervision  by  the  state  of  pri-      ^ 
vate  concerns,  there  has  been  a  wholesome  opposition  to      ^ 
inquisitorial  taxes.     But  this  opposition  has  been  carried 
too  far,  and  is  due  more  to  the  ignorant  and  at  times  brutal 
disregard  by  the  agents  selected  for  enforcing  the  law  than 
to  an  appreciation  of  the  injustice  of  the  tax.     Whether 
in  customs  or  excise,  the  same  blunders  of  management 
have  been  committed,  and  created  a  spirit  in  the  people       > 
that  is  injurious  to  their  best  interests.     On  the  one  hand, 
private   enterprises   have   been   unduly   favoured   by   the 
removal  of  foreign  competition,  a  favour  that  is  now  disap- 
pearing through  the  remarkable  development  of  domestic 
competition.     Thus  taxes  have  been  extensively  used  for 
other  purposes  than  to  obtain  revenue,  and  for  private 
ends.     On  the   other  hand,  there  has  been  created   the^    • 
feeling  that  taxation  is  a  proper  instrument  for  effect-  \ 
ing  a  more  equal  distribution  of  wealth  among  the  people,  I    - 
and  readily  becomes  an  instrument  of  oppression.  i^ 

The  almost  absolute  dependence  of  the  Federal  Gov- 
ernment upon  the  customs  duties  for  revenue  through  a 
great  part  of  its  existence  was  a  striking  fact.  The  sim- 
plicity of  collection  and  the  comparatively  moderate  scale 
of  duties,  although  considered  high  at  the  time  of  imposi- 
tion, gave  this  branch  of  the  possible  sources  of  revenue  a 


612    THE  THEORY  AXD  PRACTICE  OF  TAXATION. 

magnified  importance.  The  development  of  the  country 
was  slow,  and  at  times  greatly  hampered  by  the  tariff 
policy;  but  until  about  1857  no  other  source  of  income  was 
needed  to  meet  the  expenditures  of  the  Government  in  a 
time  of  peace. 

In  recent  years  this  has  all  changed,  and  not  for  the 
better.  The  immense  development  in  manufactures  and 
financial  ability  accomplished  since  1860  has  made  a  tariff 
for  protection  an  anachronism.  {The  political  features  of 
customs  legislation  have  been  pushed  so  far  as  almost  to 
overshadow  the  fiscal  qualities^  The  wave  of  protection- 
ism that  followed  the  abrogation  of  the  commercial  treaties 
of  Europe  about  1880  has  resulted  in  tariffs  framed  with 
the  desire  to  injure  the  commerce  of  other  states  rather 
than  to  meet  the  needs  of  a  treasury.  In  the  United 
States  this  policy  has  been  carried  beyond  that  of  Europe, 
and  the  tariff  now  in  existence  is  more  protective  than  any 
hitherto  enforced,  short  of  absolute  prohibition  of  imports. 

In  more  respects  than  one  the  tariff  law  of  1897  was  an 
extreme  application  of  the  protective  policy.  Each  year 
the  United  States  has  demonstrated  its  ability  not  only  to 
meet  the  industrial  competition  of  the  Avorld  on  an  equal 
footing,  but  to  engage  with  it  aggressively  and  ^^'ith  com- 
plete success.  It  is  not  necessary  to  give  the  figures  of 
exports  of  manufactures  to  establish  this  fact;  it  is  now 
beyond  question.  To  frame  a  measure  of  extreme  protec- 
tion was,  therefore,  to  overlook  the  most  striking  phase  of 
the  industrial  situation  existing  in  the  United  States. 
With  an  ability  to  manufacture  cheaply  and  on  a  grand 
scale,  and  with  a  capacity  to  supply  the  demands  of  a 
market  larger  than  any  home  market,  there  was  no  foreign 
competition  to  encounter,  and  the  higher  rates  of  duties 
meant  nothing,  either  for  protection  or  for  revenue.  In 
carrying  further  into  action  a  tariff  framed  more  for  pro- 
tection than  for  revenue,  a  twofold  error  was  committed. 
The  provisions  were  so  complicated  as  to  make  the  appli- 
cation diificult,  and  in  applying  these  provisions  inquisi- 
torial and  vexatious  regulations  were  necessary  to  assure 
even  a  reasonable  fulfilment  of  the  requirements.  In  for- 
mer tariff  laws  a  general  description  carried  a  large  class 
of  articles,  and  a  uniform  duty,  usually  ad  valorem,  was 
collected.     But,  under  the  demand  for  a  more  scientific 


COMPLEX  TARIFF  LAW.  6I3 

tariff,  these  general  classes  were  broken  up  into  a  number 
of  enumerated  articles,  each  one  carrying  a  specific  or 
mixed  duty,  and  an  omnium  or  basket  clause  at  the  end  to 
catch  any  article  that  could  not  be  included  in  one  of  the 
enumerations.  This  desire  to  fix  specific  rates  upon  each 
imported  commodity  has  been  applied  more  generally  in 
the  law  of  1897  than  in  any  previous  tariff  act.  An  exam- 
ination of  the  imports  of  manufactures  of  textile  fibres  will 
illustrate  this  increase  of  complexity  without  any  increase 
of  revenue.  Indeed,  these  classifications  and  rates,  being 
suggested  by  interested  parties,  have  for  their  object  a 
reduction  of  imports,  and  as  a  rule  a  reduction  in  revenue 
from  them  follows. 

The  second  objection  to  the  increasing  complexity  of 
the  tariff  laws  is  to  be  found  in  the  petty  annoyances  im- 
posed upon  importers  and  others  in  enforcing  the  not 
always  consistent  provisions  of  the  law.  These  vexations 
are  made  all  the  more  telling  by  the  fact  that  the  admin- 
istration of  the  law  is  apt  to  be  in  the  hands  of  those  who 
are  openly  hostile  to  foreign  importations,  and  therefore 
regard  the  importer  in  an  unfriendly  spirit.  The  power 
given  to  the  customs  agents  is  enormous,  and  it  is  not 
remarkable  that  it  is  abused.  The  demand  for  samples, 
the  appraisement  of  articles,  the  classification  of  new  or 
compound  commodities,  all  offer  room  for  controversy, 
which  is  not  always  decided  by  an  appeal  to  the  courts  of 
justice.  In  special  instances,  where  a  section  of  the  law 
has  been  framed  in  behalf  of  a  special  interest,  the  at- 
tempt to  enforce  it  becomes  petty  tyranny  of  the  most 
intolerable  kind. 

In  operation  the  law  soon  exhibited  its  failure  as  a  rev- 
enue measure.  Although  duties  were  generally  increased, 
the  more  important  articles  taxed  yielded  a  smaller 
revenue  than  under  lower  rates.  The  aggregate  collec- 
tions under  the  bill  did  not  meet  the  expectations  of  its 
sponsors,  and  for  two  reasons:  first,  because  the  higher 
duties  discouraged  imports;  and,  secondly,  the  demand  for 
imported  articles  was  steadily  decreasing  under  the  ex- 
panding ability  of  home  manufactures  to  meet  the  needs 
of  the  market.  No  measure  short  of  a  direct  encourage- 
ment to  importations  can  change  this  situation,  or  prevent 
the  further  shrinkage  in  the  use  of  foreign  manufactures. 


614    THE  THEORY   AND   PRACTICE  OF   TAXATION. 

It  follows  that  the  tariff,  unless  radically  altered,  can  no 
longer  be  depended  on  for  a  return  sufficient  to  defray  one 
half  of  the  rapidly  increasing  expenditures  of  the  national 
Government.  (By  refusing  to  impose  moderate  duties  on 
articles  of  general  consumption,  revenue  is  sacrificed;  by 
insisting  upon  imposing  protective  duties  where  little  rev- 
enue can  be  had,  the  tariff  is  converted  into  a  political 
weaponj  Its  dangerous  qualities  are  strengthened  by 
turning  these  duties  against  the  products  of  certain  coun- 
tries, a  policy  specially  fit  to  invite  reprisals. 

Even  the  framers  of  this  latest  tariff  entertained  the 
belief  that  some  provision  should  be  made  for  breaking  its 
full  effect.  The  familiar  scheme  for  reciprocity  treaties, 
under  which  moderate  concessions  in  some  of  the  duties 
could  be  made,  was  retained;  but  France  was  the  only 
power  that  could  have  an  object  in  seriously  entertaining 
the  proposition  to  enter  into  a  negotiation.  No  real  reduc- 
tion in  duties  could  be  given  to  Germany  or  any  other 
country,  and  it  has  become  a  recognised  fact  that  Germany 
does  not  hesitate  to  seize  an  opportunity  to  exclude  the 
products  of  the  United  States,  and  on  the  same  grounds 
as  support  the  high  duties  in  the  American  tariff.  The 
system  of  drawbacks  has  ceased  to  be  of  much  moment 
in  our  customs  policy,  and  in  the  export  interest  in  canned 
goods  finds  its  chief  exercise.  Nor  does  a  privilege  to 
manufacture  in  bond  affect  more  than  one  article  of  im- 
portance— ores  of  lead  containing  silver.  No  matter  how 
it  is  regarded,  the  tariff  of  1897  was  not  framed  for  rev- 
enue, and  in  experience  has  not  proved  sufficiently  produc- 
tive to  meet  its  share  of  the  expenditures  of  Government. 
The  animus  of  its  sponsors  in  attaining  the  immediate 
political  object  sacrificed  the  more  important  and  perma- 
nent object  of  revenue.  It  is  a  law  which  can  be  produc- 
tive of  revenue  only  in  periods  of  great  commercial 
activity. 

Were  the  true  object  of  customs  duties — revenue — to 
be  kept  in  view  in  tariff  legislation,  it  would  be  a  simple 
matter  to  devise  a  measure  that  would  be  satisfactory  and 
highly  productive  of  revenue.  In  the  fifteen  hundred  or 
more  articles  enumerated  in  the  tariff  schedules,  more 
than  fourteen  hundred  are  non-productive,  or  yield  so  small 
a  return  as  to  have  in  the  aggregate  no  appreciable  effect 


TARIFF   REFORM.  5I5 

on  the  total  receipts.  The  number  left  after  so  large  an 
exclusion  can  be  still  further  reduced  without  reducing 
the  revenue  one  tenth;  and  it  is  from  a  small  number  of 
articles,  hardly  twenty-iive,  that  the  great  part  of  the  cus- 
toms revenue  is  obtained.  By  reducing  the  rates  of  duties 
on  these  to  a  point  of  highest  revenue  efficiency,  at  which 
the  import  is  not  interfered  with  and  yet  not  encouraged, 
a  higher  return  could  be  had  than  from  the  existing  com- 
plicated, overloaded,  and  political  compilation  of  duties, 
usually  imposed  for  any  reason  other  than  what  they  will 
bring  into  the  treasury. 

When,  therefore,  the  best  methods  of  Federal  taxation 
are  broached,  the  reform  of  the  tariff  stands  first  in  im- 
portance. It  is  necessary  to  bring  it  more  into  line  with 
the  industrial  conditions  of  to-day,  which  call  for  foreign 
markets  rather  than  a  domestic  or  closed  market;  and  for 
a  liberal  commercial  policy  in  place  of  one  that  regards  the 
products  of  other  countries,  whether  imported  in  the  crude 
or  manufactured  forms,  as  constituting  a  menace  to  Ameri- 
can labour  and  American  interests.  It  calls  for  a  sys- 
tematic and  intelligent  revision,  which  shall  throw  out 
such  duties  as  are  no  longer  of  service  even  for  protection, 
and  to  reduce  those  that  are  hostile  to  the  products  of 
other  countries  and  bear  in  themselves  the  seeds  of  repris- 
als in  the  future.  Now  that  the  United  States  is  going 
into  the  great  markets  with  its  manufactures,  and  obtain- 
ing a  foothold  against  all  competitors,  the  invitation  to 
retaliation  holds  a  danger  far  greater  to  its  own  interests 
than  any  that  can  be  inflicted  on  other  peoples.  The 
greater  the  advances  made  the  more  readily  will  recourse 
be  had  to  reprisals  and  hostile  legislation;  and  in  support 
of  every  act  appeal  may  be  had  to  examples  set  by  the 
United  States.* 

*  "  The  old  protectionist,  with  the  stoek  arguments  about  the 
influence  of  the  tariflF  upon  wages  and  all  the  rest  of  it,  is  beginning 
to  die  out.  He  told  us  all  he  had  to  say  about  the  '  pauper  labour  ' 
of  Europe,  by  which  he  often  meant  the  best-educated  and  most 
skilful  artisans  of  the  world.  We  got  tired  of  hearing  about 
how  the  importer  paid  the  tax,  how  it  was  Europe  and  England  in 
particular  that  was  all  the  time  squeezing  our  lives  out,  till  nearly 
all  of  us,  being  of  English  ancestry  ourselves,  wondered  whether  we, 
even,  could  be  so  good  as  we  hoped  we  were,  if  we  had  sprung 
from  something  soessentially  perverted  and  bad.     We  were  told, 


616    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

too,  that  American  tourists  who  went  to  Europe  and  spent  money 
there  which  they  ought  to  have  squandered  at  home  were  not 
friends  of  their  country,  and  that  they  did  us  a  particularly  hostile 
act  when  they  brought  clothing,  statuary,  or  diamond  rings  back 
with  them  from  foreign  parts.  A  season  of  high  prices  was  a  real 
heaven,  and  wars  and  fires  were  good  things  because  they  destroyed 
property  that  would  have  to  be  replaced,  and  this  would  create 
that  demand  which,  reacting  on  supply,  would  increase  prices.  To 
say  that  an  article  was  cheap  was  to  say  that  the  political  party  in 
power  was  no  longer  worthy  of  public  confidence.  It  was  related 
that  each  government  could  make  its  people  so  rich,  and  the  idea 
was  thought  to  have  been  traced  down  from  Henry  C.  Carey,  that 
the  rest  of  the  world  could  be  safely  disregarded  altogether. 

"Seriously,  who  believes  any  of  this  stuff  nowadays?  The  pro- 
tectionist is  not  reckoning  with  such  popular  impotency  and  stupid- 
ity. He  believes  in  his  fellow-man,  and  wants  to  give  him  a  helping 
hand.  He  does  not  care  what  effect  it  has  on  England  or  Ireland. 
He  is  not  sure  that  a  protective  tariff  in  and  of  itself  will  increase 
the  wages  of  the  workmen.  He  is  even  inclined  to  think  that  less 
wages  and  profits  would  do  well  enough  for  every  man,  if  it  were 
cheaper  to  live  and  there  were  not  such  extravagant  demands  upon 
every  person  from  all  sides — this  without  being  a  socialist.  He  is 
certain  that  '  a  cheap  coat '  does  not  necessarily  make  '  a  cheap 
man,'  but  the  cheaper  the  coat  the  better  it  Avill  be  for  the  wearer. 
That  is  what  we  are  all  trying  to  do,  improve  our  processes,  in- 
crease our  effective  working  power,  which  means,  if  you  please, 
to  make  things  cheaper." — The  Manufacturer  (organ  of  the  Manu- 
facturers' Club  of  Philadelphia). 


CHAPTEE    XXVIII. 

THE    BEST    METHODS    OF    TAXATION. 
PART    II. 

In  passing  from  the  tariff,  or  duties  on  imports,  to  the 
internal  or  excise  taxes  imposed  by  the  Federal  Govern- 
ment, there  is  evidently  a  distinct  change  in  purpose. 
However  subject  to  abuse  the  tax  on  distilled  spirits  has 
proved,  and  however  frequently  its  agency  has  been  in- 
voked to  exaggerate  the  profits  of  interested  parties, 
there  has  never  been  an  open  and  avowed  intention  of 
turning  it  to  private  gain.  The  policy  that  has  become 
almost  inseparable  from  the  customs  tariff,  and  is  by  most 
people  regarded  as  inherent  in  all  customs  legislation,  has 
not  been  transferred  to  the  internal-revenue  taxes  save  in 
one  or  two  instances  of  recent  application  and  secondary 
importance.  The  danger  of  permitting  taxation  to  be 
employed  by  either  State  or  Federal  Government  for  a 
purpose  other  than  that  of  raising  necessary  revenue  has 
been  dwelt  upon.  When  a  police  power  is  exercised  in 
conjunction  with  a  tax  framed  for  revenue,  and  is  regarded 
as  the  more  important  function  to  be  performed,  the  policy 
requires  careful  examination.  If  revenue  is  the  real 
object,  the  method  of  imposing  the  tax  and  the  determina- 
tion of  the  rate  which  will  give  the  highest  return  with 
the  least  interference  in  the  production,  distribution,  and 
export  of  the  commodity  taxed  remains  to  be  defined.  If 
restriction  in  manufacture,  sale,  or  consumption  is  intend- 
ed, the  question  is  no  longer  one  of  taxation  proper,  but  of 
police  regulation.  The  Federal  taxes  on  oleomargarine, 
filled  cheese,  and  mixed  flour  are  of  the  nature  of  police 
inspection,  and  the  tax  on  the  circulation  of  State  banks, 
amounting,  as  it  has,  to  prohibition,  is  a  still  more  extreme 
exercise  of  the  same  power.  Th,e  imposition  and  collec- 
40  617 


618    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

tion  of  these  duties  have  a  penal  quality,  an  intention  to 
restrict  or  prohibit  the  production  or  sale  or  use  of  some 
article.  They  are  not  properly  taxes;  they  are  not  a 
proper  application  of  tax  principles,  but  have  originated  in 
private  interest,  or  in  tlie  deliberate  intention  to  consti- 
tute a  monopoly.  State  or  other. 

The  approach  of  war,  or  its  actual  presence,  is  made 
the  excuse  of  an  extension  of  taxes,  and  the  Federal  Gov- 
ernment tacitly  admits  its  inability  to  increase  indirect 
taxes  on  consumption  by  its  general  resort  to  an  extension 
of  the  internal  taxes  and  excise.  The  instrumentalities 
of  business  offer  a  fair  field  for  stamp  taxes,  and  these, 
when  not  so  burdensome  as  to  invite  evasion,  are  acceptable 
because  of  the  ease  with  which  they  are  assessed  and  col- 
lected. A  specific  duty  on  the  more  important  acts  of 
commerce  and  daily  business  may  be  evaded,  it  is  true,  but 
not  when  the  paper  or  instrument  taxed  must  become 
public  evidence.  Stamps  of  small  denomination  on  bonds, 
debentures,  or  certificates  of  stock  and  of  indebtedness; 
on  a  bill  of  sale  or  memorandum  to  sell;  on  bank  checks, 
drafts,  or  certificates  of  deposit;  bills  of  exchange,  draft, 
or  promissory  note;  money  orders  and  bills  of  lading;  on 
express  and  freight  receipts,  on  telegraph  messages,  and  a 
large  number  of  legal  and  other  instruments,  such  as 
leases,  mortgages,  charter  party,  insurance  policies — these 
are  simple  duties  productive  of  large  returns,  and  not 
unequal  in  their  weight.  The  law  of  1898  included  such 
stamp  taxes,  as  well  as  others  on  proprietary  articles  and 
wines.  It  was  not  easy  to  predict  the  incidence  of  these 
rates,  and  the  distribution  has  been  unequal.  The 
charges  of  one  cent  on  telegraph  messages  and  express 
packages  are  paid  by  the  sender  in  the  larger  number  of 
cases,  the  companies  merely  adding  a  penny  to  their  rates. 
This  was  not  the  intention  of  the  law,  and  the  courts  have 
held  that  it  was  not  so  intended.  The  individual  is  power- 
less in  a  few  transactions,  and  only  the  great  concerns  are 
able  to  avail  themselves  of  this  decision.  The  duties  for 
seats  or  berths  in  a  parlour  car  or  for  proprietary  medi- 
cines, are  paid  by  the  company  or  manufacturer,  though  in 
certain  preparations  the  price  to  the  consumer  was  ad- 
vanced on  the  passage  of  the  act.  "With  all  their  draw- 
backs, and  they  are  not  few  in  number,  these  stamp  duties 


INTEENAL  DUTIES.  619 

afford  a  ready  means  of  obtaining  a  good  revenue  without 
increasing  unduly  the  general  burdens  of  taxation.  The 
law  of  1898  was  modelled  after  that  of  1863,  and  many  of 
the  rates  and  descriptions  will  undoubtedly  be  incorpo- 
rated into  the  permanent  internal-revenue  system  of  the 
country — a  measure  enforced  by  the  remarkably  unequal 
returns  derived  from  the  customs. 

The  existing  system  of  internal  duties  is  even  more 
defensible  than  the  tariff  as  a  source  of  revenue.  Its  in- 
equalities, due  to  the  haste  in  which  the  measure  was 
prepared  and  the  inexperience  of  those  who  framed  the 
provisions  and  fixed  upon  the  rates,  are  worn  away  in  use, 
and  where  the  rates  are  moderate  and  are  not  infected  with 
a  penal  quality,  the  community  adapts  itself  to  them, 
accepting  them  as  a  necessary  convenience.  In  the 
United  States  this  spirit  of  acquiescence  is  most  marked, 
not  only  because  of  a  natural  patience  of  tax  burdens,  but 
because  of  as  natural  a  fear  of  other  untried  and  more 
radical  or  oppressive  measures.  The  situation  of  "  busi- 
ness "  when  a  general  tariff'  bill  is  pending  in  Congress  is 
one  almost  of  panic,  and  the  scramble  to  protect  interests 
or  to  obtain  some  special  advantage  against  rivals  has 
become  a  scandalous  feature  of  tariff  revision.  Except  in 
the  instances  named,  as  oleomargarine  and  filled  cheese,  the 
internal-revenue  system  presents  less  of  a  field  for  such  an 
exhibition  of  greed  and  self-interest;  but  the  spirit  duties, 
and  even  the  tobacco  rates,  may  be  used  in  such  a  way  as 
to  favour  the  large  manufacturer  against  the  small  con- 
cerns, and  are  to  that  extent  misused  and  applied  for  pur- 
poses antagonistic  to  those  properly  pertaining  to  taxation. 
In  a  time  of  tax  revision  the  suggestions  for  new  taxes  and 
ideas  for  changing  the  old  are  freely  offered,  and  do  not 
stop  short  of  absolute  prohibition  of  an  industry,  of  total 
destruction  of  interest.  The  vagaries  of  a  legislative  body 
under  such  suggestions  have  instilled  into  the  public  mind 
a  wholesome  fear  of  its  possible  acts  and  fully  explain  the 
timid  and  uneasy  condition  of  "  business  "  when  a  general 
tax  measure  is  under  discussion.  Whether  it  be  the  man- 
ufacturer or  producer  seeking  protective  duties,  or  the 
Granger  or  Populist  asking  for  taxes  of  confiscation  against 
capital  and  accumulated  property,  the  spirit  is  the  same — 
a  desire  to  turn  taxation  to  improper  purposes. 


v.> 


620    THE   THEORY   AND  PRACTICE   OP  TAXATION. 

The  tendency  of  Federal  taxation  to  turn  to  taxes  on 
capital  and  the  instruments  of  "  business  " — direct,  rather 
than  indirect  taxes — found  its  most  extreme  illustration  in 
the  income  tax  of  1894,  the  principles  of  which  have  al- 
ready been  discussed.  It  finds  a  more  moderate  and  re- 
stricted exercise  in  certain  graduated  duties  under  the 
act  of  1898,  and  especially  in  the  duties  on  legacies  and 
distributive  shares  of  personal  property.  It  was  no  senti- 
mental or  even  theoretical  argument  based  upon  the  right 
of  inheritance  or  the  inequality  of  taxation  that  led  to  the 
adoption  of  these  duties  in  1898;  it  was  only  a  blind  fol- 
lowing of  the  provisions  of  the  earlier  act  and  the  con- 
sciousness that  revenue  must  be  had  at  every  cost,  and  no 
possible  source  of  income  should  be  overlooked.  Yet  the 
legacy  tax  is  essentially  a  tax  of  democracy  and  defensible 
for  much  the  same  reasons  as  a  tax,^vliether  graduated  or 
not,  upon  income  might  be. 

By  the  act  approved  June  13,  1898,  entitled  "  An  act 
to  provide  ways  and  means  to  meet  war  expenditures,  and 
for  other  purposes,"  the  national  Government  imposed  a 
tax  upon  legacies  and  distributive  shares  of  personal  prop- 
erty. This  tax  has  been  one  of  the  features  of  the  tax  law 
of  1862  (§§  111-114),  but  in  a  much  simpler  form  and  in 
a  form  better  calculated  to  produce  a  revenue.  This  ear- 
lier law  imposed  a  duty  on  all  legacies  exceeding  one  thou- 
sand dollars  in  amount,  but  very  properly  made  a  distinc- 
tion in  the  rate  according  to  the  'degree  of  connection 
between  the  person  from  whom  the  property  came  and  the 
receiver  of  the  legacy.  Thus,  lineal  issue,  or  lineal  ances- 
tor, brother  or  sister,  should  pay  at  the  rate  of  seventy-five 
cents  for  each  and  every  hundred  dollars  of  the  clear  value 
of  the  interest  in  the  property.  A  descendant  of  a  brother 
or  sister  of  the  decedent  paid  double  this  rate;  an  uncle 
or  an  aunt  was  taxed  three  dollars  for  every  one  hundred 
dollars  passing;  a  great-uncle  or  a  great-aunt,  four  dollars; 
and  persons  in  any  other  degree  of  collateral  consanguin- 
ity, or  a  stranger,  or  a  body  politic  or  corporate,  five  dollars. 
The  only  exemption  made  was  in  favour  of  a  wife  or  hun- 
band.  As  only  personal  property  was  intended  to  be 
reached,  all  land  and  real  estate  escaped  the  duty. 

The  law  of  1898  made  important  modifications  in  these 
rates  and  manner  of  assessing.     In  the  first  place,  the 


LEGACY  TAX.  621 

rates  fell  only  on  legacies  in  excess  of  $10,000,  a  limit  ten 
times  larger  than  that  of  the  law  of  1862.  The  degrees 
of  relationship  were  the  same,  the  rates  were  copied  from 
those  of  the  earlier  act,  and  the  same  exemption  of  prop- 
erty passing  between  husband  and  wife  was  admitted. 
But  the  idea  of  a  progressive  tax  was  ingrafted  into  the 
law.  Thus,  the  old  rates  applied  only  to  legacies  of  more 
than  $10,000  and  not  more  than  $25,000.  When  the  prop- 
erty passing  was  valued  between  $25,000  and  $100,000  the 
rates  were  multiplied  by  one  and  a  half;  between  $100,000 
and  $500,000,  they  were  multiplied  by  two;  between 
$500,000  and  $1,000,000,  they  were  multiphed  by  two  and 
a  half;  and  by  three  when  the  property  was  in  excess  of 
$1,000,000.  In  restricting  the  tax  to  personal  property 
passing  by  inheritance  the  measure  aims  at  a  crude  means 
of  making  the  burdens  of  personal  more  nearly  approach 
those  of  real  property.  No  such  consideration  controlled 
the  views  of  those  responsible  for  the  act,  and,  after  all, 
it  offers  only  a  question  of  theoretical  interest.  The  in- 
heritance taxes  collected  in  many  of  the  States  may  have 
owed  their  adoption  to  such  an  idea,  but  the  United  States, 
in  taking  up  these  duties,  merely  saw  a  means  of  obtaining 
revenue  without  regarding  the  actual  results  of  the  tax 
on  the  estates  paying  it. 

"  The  inheritance  tax  in  one  form  or  another  has  come 
to  stay,  and  new  States  are  being  added  every  year  to 
the  list  of  those  which  have  adopted  it.  Five  years  ago  it 
was  found  in  only  nine  States  of  the  Union — Pennsylvania, 
Maryland,  Delaware,  New  York,  West  Virginia,  Connecti- 
cut, Massachusetts,  Tennessee,  and  New  Jersey.  During 
the  first  half  of  1893  Ohio,  Maine,  California,  and  Michi- 
gan were  added  to  the  list,  though  the  Michigan  law  was 
afterward  annulled  because  of  an  unusual  provision  in  the 
State  Constitution  which  was  not  complied  with.  In  1894 
Louisiana  revived  her  former  tax  on  foreign  heirs;  Minne- 
sota adopted  a  constitutional  amendment  permitting  a  pro- 
gressive inheritance  tax  which  has  not  yet  been  given 
effect  by  the  Legislature;  and  Ohio  added  to  her  collateral 
inheritance  tax  a  progressive  tax  on  direct  successions.  In 
1895  progressive  inheritance  taxes  were  adopted  in  Illi- 
nois and  Missouri,  and  an  old  proportional  tax  was  re- 
vived in  Virginia;  and  last  year  Iowa  adopted  in  part 


622    THE  THEORY  AND  PRACTICE  OF  TAXATION, 
the  inheritance  tax  recommendation  of  her  revenue  com- 


mission 


55   * 


The  real  problems  are  to  be  encountered  in  local  taxa- 
tion. The  many  different  methods  used  in  the  different 
States,  the  want  of  uniformity  in  the  local  divisions  of 
each  State,  and  the  extraordinary  diversity  in  the  interpre- 
tation or  application  of  tax  laws  by  the  courts  and  execu- 
tive authorities  of  the  States  have  introduced  a  confusion, 
to  end  which,  many  would  invoke  the  intervention  of  the 
Federal  Government.  The  haphazard  manner  in  which 
the  laws  have  been  framed  and  passed  is  only  the  least 
notable  explanation  of  the  variety  of  phrase  and  interpre- 
tation to  be  found.  Even  were  the  Federal  Government 
to  establish  definitions,  and  frame  uniform  rules  of  assess- 
ment, there  would  still  be  room  for  difference.  The  cus- 
toms tariff  is  known  to  be  variously  applied  in  different 
parts  of  the  country,  and  there  is  greater  certainty  in  the 
tariff  rate  than  could  be  found  in  a  tax  resting  on  the 
assessed  valuation  of  land,  for  example. 

The  difficulty  encountered  by  France  in  its  attempt  to 
determine  the  net  income  from  land  for  the  purposes  of 
taxation  carries  an  important  lesson.  Failing  to  obtain 
uniformity  of  appraisement  of  this  net  income  under  the 
crude  method  first  employed — of  basing  it  on  the  charac- 
ter of  soil  and  nature  of  cultivation,  deducting  the  ex- 
penses of  cultivation — a  cadastre  was  decreed,  f  In  this 
cadastre  each  particular  piece  of  property  was  recorded, 
with  its  boundaries,  its  manner  of  cultivation,  and  its  net 
rental.  Begun  in  1807,  it  was  not  completed  until  1850, 
and  proved  of  little  value,  as  no  provision  had  been  made 
for  recording  the  changes  in  cultivation,  rentals,  or  other 
conditions,  except  those  of  ownership,  buildings,  and 
exemption  from  taxes.  Instead  of  proving  a  successful 
means  to  a  desired  end,  it  "  turned  out  to  be  a  stupendous 
disillusionment."  "  The  experience  of  both  the  western 
Prussian  provinces  and  of  France  showed  that  the  newly 

*  Max  West,  in  North  American  Review,  May,  1897,  p.  635. 

t  The  word  cadastre  was  derived  from  the  Latin  capitastrum, 
or  register  of  capita,  gric/a,  or  units  of  territorial  taxation  into 
which  the  Roman  provinces  were  divided  for  the  purposes  of 
eapitatio  tcrrcna,  or  land  tax.  It  is  of  modern  use  and  is  locally 
found  in  Louisiana. 


LAND  CADASTRE.  623 

constructed  cadastre  was  of  considerable  service  in  equaliz- 
ing the  land  tax  within  a  relatively  small  area,  but  not  as 
a  basis  for  alterations  in  the  contingents  to  be  paid  Ijy  large 
and  widely  separated  regions.  The  officials  in  charge  of 
the  cadastre  on  the  Ehine,  as  well  as  those  in  France, 
themselves  admitted  that  any  computation  of  net  income 
was  uncertain;  that  the  coincidence  of  the  figures  obtained 
by  the  cadastral  computation  with  the  actual  net  income 
could  never  be  assured;  that  the  figures  afi:orded  by  the 
cadastre  were  rather  of  the  nature  of  a  proportion,  while 
uniformity  of  assessment  was  to  be  attained  rather  by 
observation  of  the  business  transacted  than  by  depending 
on  the  figures  obtained  by  computation."  *  This  effort 
to  discover  and  record  the  net  income  from  land  was  a 
failure. 

So  thorough  an  experiment,  carried  through  so  long  a 
time,  and  presenting  an  example  to  be  avoided,  was  in  fact 
imitated  by  Prussia  under  a  law  of  1865.  In  each  division 
(Kreis)  was  appointed  a  commissioner,  who  was  chairman 
of  a  committee,  the  size  of  which  ranged  from  four  to  ten 
members,  according  to  the  size  of  the  division.  One  half 
of  this  committee  was  appointed  by  the  representatives  of 
the  division,  and  one  half  by  the  central  Government. 
A  number  of  divisions  formed  a  department,  with  its  com- 
missioner and  committee  of  similar  composition  as  in  the 
division,  and  above  all  was  a  central  committee,  presided 
over  by  the  Minister  of  Finance.  The  valuation  was 
accomplished  in  less  than  four  years.  The  method  was 
applied  only  to  land  employed  in  agriculture  or  forests;  a 
separate  law  provided  for  the  taxation  of  buildings  and 
gardens.  In  the  end  the  results  were  no  better  than  those 
obtained  in  France.  In  either  case  a  plan  too  refined  to 
work  to  advantage  had  been  employed,  and,  apart  from  its 
simplest  function,  that  of  making  a  general  survey  of  the 
land  and  the  uses  to  which  it  was  applied,  it  could  not 
advance  the  theory  of  a  proper  land  tax.  No  modification 
could  make  it  a  better  instrument  of  taxation.  The  gross 
income  from  land  as  a  taxing  basis  would  involve  heavy  in- 
justice, and  further  supervision  by  government  officers 
could  not  do  away  with  the  mechanical  difficulties  of  secur- 

*  Cohn.     Science  of  Finance,  p.  477. 


624    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

ing  uniformity.  The  English  plan  of  making  rental  value 
the  foundation  is  more  easily  applied  and  gives  better 
results. 

If  land  be  difficult  of  assessment,  personal  property 
offers  a  very  much  more  difficult  problem.  On  this  par- 
ticular question  this  country  has  much  to  learn  from  the 
experience  of  other  governments.  In  Great  Britain  a 
Royal  Commission  has  been  making  a  study  of  local  taxa- 
tion, and,  in  a  preliminary  report,  concludes  that  an 
alteration  in  the  law  for  the  purpose  of  obtaining  a  uni- 
form basis  of  valuation  in  England  and  Wales  is  a  neces- 
sary preliminary  to  any  revision  of  the  existing  system  of 
local  taxation.  It  has  been  already  stated  that  the  poor 
rate  constituted  the  basis  of  valuation  of  property  for  local 
rates.  In  its  development  the  system  has  become  more 
complicated.  Two  valuations  of  the  same  property  may 
be  made  for  raising  imperial  taxes — namely,  one  for  the 
income  tax  and  one  for  the  land  tax.  Three  valuations  of 
the  same  property  may  be  made  for  raising  local  rates — 
namely,  one  for  the  poor  rate,  one  for  the  county  rate, 
and  one  for  the  borough  rate.  Here,  then,  are  five  differ- 
ent valuations  in  activity. 

Of  these  the  parish  was  the  first  and  most  important 
division,  having  been  introduced  in  the  sixteenth  century, 
when  the  dissolution  of  the  monasteries  had  raised  the 
question  of  poor  relief.  It  was  adopted  for  convenience, 
as  the  contributions  were  at  first  entirely  voluntary;  but 
as  the  problem  of  the  poor  increased  in  importance,  com- 
pulsion was  applied,  and  at  the  beginning  of  the  seven- 
teenth century,  by  the  acts  of  Elizabeth  of  1597  and  1601, 
compulsion  was  fully  established  and  the  parish  adopted 
as  the  area  for  levying  rates  for  the  relief  of  its  poor.  It 
now  became  necessary  to  define  more  specifically  the 
persons  liable  for  this  rate,  but  the  law  framed  no  system 
by  which  assessments  were  to  be  made  or  rates  collected. 
A  distinction  was  made  between  the  occupier  of  certain 
properties  (such  as  lands,  houses,  coal  mines,  or  salable 
underwoods)  and  an  inhabitant  of  the  parish.  The  occu- 
pier was  to  be  taxed  upon  the  basis  of  the  annual  benefit 
arising  from  the  property  situated  in  the  parish;  but  the 
inhabitant  was  taxed  not  in  respect  to  any  specified  sub- 
jects, implying  an  intention  to  tax  them  upon  some  other 


LOCAL   VALUATIONS  IN  ENGLAND.  625 

basis.  This  raised  the  question  of  "  abihty/'  and  how  that 
question  was  to  be  determined.  The  act  said  nothing  that 
could  point  to  personal  property,  "  and  it  was  only  on  the 
ground  of  his  being  an  inhabitant  that  any  owner  of  per- 
sonal property  could  be  rated  for  that  property,  because 
there  was  no  word  in  that  statute  to  include  him,  except 
the  word  inhabitant.  Under  that  statute,  therefore,  there 
was  necessarily  a  distinction  between  residents  and  non- 
residents, because  the  resident  would  be  ratable  for  his 
personalty  within  the  place,  the  non-resident  not.  The 
distinction,  however,  under  that  statute  applied  only  to 
those  kinds  of  property  which  the  statute  did  not  specify, 
for  the  occupier  of  lands,  houses,  etc.,  and  whatever  the 
statute  enumerated,  was  ratable  whether  he  were  resident 
or  not."  *  And  when  the  judge  of  assize  was  asked  to 
give  an  opinion  he  decided  that  lands  should  be  taxed 
equally  and  indifferently,  but  an  additional  tax  could  be 
laid  on  the  "  personal  visible  ability  "  of  the  parishioner. 
Further,  "  all  things  which  are  real,  and  a  yearly  revenue 
must  be  taxed  to  the  poor."  Yet  there  were  limitations 
on  this  apparently  wide  interpretation,  and  as  early  as 
1633  it  was  only  visible  properties,  both  real  and  personal, 
of  the  inhabitants  within  the  parish,  and  only  within  the 
parish,  that  could  be  taxed.  The  property  to  be  assessed 
must  be  local,  visible,  and  productive;  it  must  consist  only 
of  the  surplus  left  after  deducting  debts;  it  must  be  rated 
according  to  the  profit  produced;  and  its  nature  must  be 
distinctly  specified.  "  Consequently,  such  subjects  as 
wages,  pensions,  easements,  profits  derived  from  labour 
and  talent,  profits  from  money  invested  or  lent  elsewhere, 
and  furniture,  were  exempt." 

The  absence  of  all  attempts  to  tax  or  value  property 
other  than  what  was  visible  and  tangible  continued  to  the 
reign  of  Queen  Anne,  when  a  single  decision  of  the  court 
pointed  to  the  taxation  of  the  stock  in  trade  of  a  trades- 
man, a  decision  that  does  not  appear  to  have  been  acted 
upon.  As  late  as  1775  Lord  Mansfield  said,  "  In  general,  I 
believe  neither  here  nor  in  any  other  part  of  the  kingdom 
is  personal  property  taxed  to  the  poor."     At  all  events,  it 

*  Abbott  (Chief  Justice)  in  E.  vs.  The  Hull  Dock  Company, 
3  B  and  C,  p.  525. 


626    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

could  not  be  taxed  unless  usage  could  support  it.  Toward 
the  end  of  the  century,  when  taxation  for  the  Napoleonic 
wars  was  touching  more  intimately  the  concerns  of  the 
people,  the  idea  of  subjecting  personal  property  to  the 
poor  rate  was  favoured,  but  nearly  half  a  century  passed 
before  it  attracted  attention.  In  their  report  for  1843  on 
local  taxation  the  poor-law  commissioners  gave  the  follow- 
ing summary  of  the  status  of  this  question: 

"  The  practice  of  rating  stock  in  trade  never  prevailed 
in  the  greater  part  of  England  and  Wales.  It  was,  with 
comparatively  few  exceptions,  confined  to  the  old  clothing 
districts  of  the  south  and  west  of  England.  It  gained 
ground  just  as  the  stock  of  the  wool  staplers  and  clothiers 
increased,  so  as  to  make  it  an  object  with  the  farmers  and 
other  rate  payers,  who  still  constituted  a  majority  in  their 
parishes,  to  bring  so  considerable  a  property  within  the 
rate.  They  succeeded  by  degrees,  and  there  followed 
upon  their  success  a  more  improvident  practice  in  giving 
relief  than  had  ever  prevailed  before  in  England.  .  .  . 
When  the  practice  of  rating  stock  in  trade  was  fully  estab- 
lished in  this  district,  the  ancient  staple  trade  rapidly 
declined  there  and  withdrew  itself  still  more  rapidly  into 
the  northern  clothing  districts,  where  no  such  burden  was 
ever  cast  upon  the  trade." 

A  final  determination  of  the  question  was  imposed 
upon  Parliament  by  the  pressure  of  the  manufacturing 
and  commercial  classes  arising  from  a  decision  in  the  case 
of  E.  vs.  Lumsdaine,  in  1839,  looking  to  the  taxation  of 
personal  property.  In  consequence,  an  act  was  passed 
(3  and  4  Vict.,  c.  89),  and  has  remained  in  force  until  the 
present  time,  exempting  an  inhabitant  from  any  tax  "  in 
respect  of  his  ability  derived  from  the  profits  of  stock  in 
trade  or  any  other  property,  for  or  toward  the  relief  of  the 
poor."  Thus  it  is  that  the  English  local  taxation  has  man- 
aged to  keep  clear  from  the  bog  of  assessing  personal  prop- 
erty, and  the  annual  value  of  immovable  property,  such  as 
lands  and  houses,  within  the  parish  has  come  to  be  selected 
as  the  simplest  and  most  practical  basis  for  assessments. 
The  history  is  of  high  importance,  because  the  basis  of  the 
poor  rate  was  adopted  as  the  basis  for  all  other  rates  levied 
in  local  taxation.  Whatever  confusion  has  been  intro- 
duced has  arisen  from  other  causes,  such  as  the  consti- 


MULTIPLE   VALUATIONS.  627 

tuting  poor-law  unions  containing  more  than  one  parish, 
the  levying  of  county  rates,  a  county  having  a  boundary 
other  than  a  parish  or  a  union,  and  the  assessing  for  rates 
by  parish  officers  who  acted  independently  of  each  other. 
Many  efforts  have  been  made  to  introduce  a  uniform  sys- 
tem of  assessment,  but  without  success.  One  of  the  clear- 
est thinkers  on  this  subject  was  Sir  George  Cornewall 
Lewis.  In  appearing  before  a  committee  on  taxation,  in 
1850,  he  said:  "  We  have  never  recognised  the  principle 
of  having  one  valuation  for  all  the  different  rates.  If  that 
principle  were  once  admitted,  the  inducement  to  have  an 
accurate  and  complete  valuation  would  be  at  its  maximum, 
because  then  you  would  know  that  whatever  charge  might 
be  imposed  it  would  be  imposed  upon  that  valuation, 
whereas  if  there  is  one  assessment  for  one  rate  and  another 
assessment  for  another  rate,  and  an  amended  assessment 
for  a  third  rate,  no  one  cares  much  about  making  any 
assessment  perfect.  This  is  one  defect  of  the  present 
system  of  valuation." 

The  defect  has  persisted  and  become  more  aggravated 
each  year.  In  1870  a  special  commission  came  to  the 
resolution  that  "  the  great  variety  of  rates  levied  by  differ- 
ent authorities,  even  in  the  same  area,  on  different 
assessments,  with  different  deductions  and  by  different 
collectors,  has  produced  great  confusion  and  expense;  and 
that  in  any  change  of  the  law  as  regards  local  taxation, 
uniformity  and  simplicity  of  assessment  and  collection,  as 
well  as  of  economy  of  management,  ought  to  be  secured 
as  far  as  possible."  When  it  is  considered  that  for  the  five 
independent  valuations  for  raising  rates  on  property  there 
are  in  England  and  Wales  more  than  one  thousand  valua- 
tion authorities,  the  hopelessness  of  obtaining  uniformity 
is  apparent.  With  such  a  multiplicity  of  agents  it  is  use- 
less to  look  for  good  results.  There  is  no  fixed  or  neces- 
sary time  for  making  the  valuation  lists;  no  uniform 
system  of  or  scale  for  making  deductions  for  arriving  at 
the  ratable  values  of  certain  classes  of  property;  exemp- 
tions and  allowances  are  said  to  be  given  unduly,  through 
undue  pressure  on  the  assessing  authorities;  and  the 
assessment  committees  have  no  statutory  power  to  ascertain 
from  owners  or  occupiers  the  rentals  and  other  particulars 
needed  to  determine  values.     The  reforms  needed  are  a 


628    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

geographical  redistribution  of  taxing  limits  and  uniform 
rules  of  assessments. 

If  so  great  confusion  can  occur  where  the  property  to 
be  valued  for  taxation  is  visible  and  tangible  property,  and 
where  the  principles  underlying  the  assessment  are  few 
and  comparatively  simple,  what  is  to  be  expected  when 
the  attempt  to  reach  invisible  and  intangible  property 
is  added? 

Constitutional  provisions  have  not  secured  equality  of 
valuation,  and  the  statute  laws  are  powerless  to  make 
effective  the  sounding  phrases  of  the  Constitutions. 
"  Property  shall  be  assessed  for  taxes,"  says  the  Constitu- 
tion of  New  Jersey,  "  under  general  laws  and  by  uniform 
rules,  according  to  true  value."  The  Assembly  sought  to 
embody  this  principle  or  rule  in  the  laws  of  the  State. 
"  All  real  and  personal  estate  within  this  State,  whether 
owned  by  individuals  or  corporations,  shall  be  liable  to 
taxation  at  the  full  and  actual  value  thereof,  on  the  day  in 
each  year  when  by  law  the  assessment  is  to  commence."  * 
Such  assertions  of  the  basis  of  taxation  need  no  further 
explanation,  for  the  intention  of  the  framers  of  constitu- 
tion and  law  is  unmistakable — equal  and  uniform  taxation, 
a  common  burden  involving  a  common  obligation  to  dis- 
charge it.  The  practice  at  once  creates  the  necessity  for 
recognising  the  inaptitude  of  the  instruments  called  upon 
to  carry  the  law  into  execution.  More  than  four  hundred 
separate  assessors  and  boards  of  assessors  determine  the 
taxable  values  upon  no  uniform  system  and  in  defiance  of 
law  and  Constitution.  "  In  practice  they  value  real  estate 
all  the  way  from  twenty-five  to  seventy-five  per  cent  of  its 
true  value,  depending  on  its  location,  income,  etc.,  and 
their  personal  or  political  prejudices,  and  value  different 
contiguous  areas  at  different  valuations,  though  of  equal 
values  really;  and  as  to  personal  property,  I  regret  to  say, 
they  appear  to  make  no  earnest  or  honest  effort  to  reach  it 
anywhere,  except  in  the  agricultural  districts,  and  even 
there  very  imperfectly."  f 

Enough  has  been  said  in  these  articles  to  show  that 
this  defect  of  method  is  not  peculiar  to  one  State,  but  is 

*  General  Statutes  of  New  Jersey,  p.  3929,  section  G2. 
t  James  F.  Rusling,  in  the  New  Jersey  report  of  1897. 


ASSESSMENTS   FOR  LOCAL   TAXATION.  629 

to  be  found  in  all.  The  remedies  proposed  or  adopted 
have  proved  inefTectiial  to  produce  a  better  result.  It  is 
asserted  that  the  more  careful  selection  of  the  assessors,  a 
higher  salary  for  service,  and  a  more  strict  accountability 
for  their  acts  would  introduce  a  reform;  but  this  could, 
even  under  the  most  favourable  of  conditions,  be  only  a 
partial  reform.  A  State  assessor  with  power  to  remove 
the  assessors  has  been  recommended,  but  this  officer  could 
not  become  so  conversant  with  conditions  throughout  the 
State  as  to  be  able  to  decide  on  the  many  questions  of 
assessments  coming  before  him.  Certain  descriptions  of 
property  could  be  dealt  with  by  such  an  officer  and  with 
an  approach  to  fair  and  equal  treatment.  The  valuation 
of  the  "  main  stem  "  of  the  New  Jersey  roads  was  made  by 
civil  engineers,  and  it  is  believed  to  have  met  the  consti- 
tutional provision  as  to  "  true  value."  In  the  valuation  of 
a  vast  quantity  of  other  property  no  such  expert  knowledge 
could  be  applied,  and  especially  is  this  true  as  to  "  personal 
property."  Eeal  estate  might  be  approximately  valued 
and  a  cadastre  or  record  prepared,  but  after  twelve  months 
the  most  carefully  compiled  valuation  would  be  out  of 
date.  Before  personal  property  the  assessor  would  still 
stand  powerless.  No  multiplication  of  officers  or  no 
system  of  control  over  the  many  local  assessors  can  solve 
this  question  in  a  manner  satisfactory  to  justice  to  both 
State  and  taxpayer. 

It  would  seem,  then,  as  if  an  abandonment  of  what  has 
been  regarded  as  almost  essential  features  of  the  State  tax 
systems  alone  offers  relief.  No  such  abandonment  can  be 
effected  unless  an  adequate  revenue  from  other  sources  be 
provided.  The  "  general  property  tax,"  with  its  futile 
and  laughable  incompetency  to  reach  the  most  profitable 
sources  of  revenue,  should  be  modified,  and  even  elimi- 
nated as  far  as  is  possible.  The  general  principle  under- 
lying it,  of  taxing  every  form  of  property,  was  suited  only 
to  a  time  when  the  bulk  of  a  man's  estate  consisted  in 
visible  and  tangible  objects — lands,  houses,  live  stock,  and 
furniture.  With  every  creation  of  a  credit  instrument, 
with  the  immense  development  of  corporations,  the  prin- 
ciple has  become  weaker,  until  it  now  stands  confesedly 
inapplicable  to  at  least  four  fifths  of  the  personal  property 
in  existence,  and  this  proportion  grows  larger  each  year. 


630    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

The  universal  and  admitted  failure  of  the  general  prop- 
erty tax  to  attain  good  results  and  the  great  difficulty, 
indeed  the  impossibility,  of  reducing  it  to  a  form  in  which 
it  can  operate  with  efficiency  and  an  approach  to  justice, 
must  lead  to  its  abolition  and  the  gradual  substitution  of 
other  and  more  simple  taxes.  However  well  adapted  to  a 
community  in  which  the  taxable  property  was  in  evidence 
and  easily  assessed  for  purposes  of  taxation,  it  becomes 
antiquated,  unequal,  and  inquisitorial  in  a  people  where 
credit  and  credit  investments  have  been  highly  developed, 
and  where  the  greater  social  activities,  whether  in  com- 
merce or  industry,  transportation  or  production,  are  con- 
ducted by  corporations  issuing  various  kinds  of  securities, 
none  of  which  can  easily  be  reached  by  a  taxing  authority 
away  from  the  centre  of  incorporation.  To  undertake  to 
include  these  securities,  evidences  of  debt,  or  obligations 
in  a  general  property  tax  is  to  invite  evasion,  put  a  heavy 
inducement  on  concealment,  and,  whenever  effective,  to 
give  rise  to  shocking  inequalities  of  burden.  The  widow 
and  orphan,  whose  property  is  in  the  hands  of  a  trustee, 
pay  the  full  tax;  in  any  other  direction  the  holder  of 
stocks  or  bonds,  money  or  notes,  escapes  according  to  the 
elasticity  of  his  conscience.  The  very  exemptions  recog- 
nised by  law  give  an  opportunity  for  new  evasions,  based 
upon  analogy  or  upon  some  technicality  under  which  the 
business  is  conducted.  Bonds  of  the  United  States,  the 
legal-tender  notes,  or  money  are  beyond  the  reach  of  State 
authorities  for  the  purpose  of  taxation.  In  the  same  cate- 
gory come  also  all  imported  goods  in  original  packages,  in 
the  possession  of  the  importers,  and  all  property  in  transit. 
These  exemptions  alone  amount  to  thousands  of  millions 
of  dollars,  and  the  tendency  has  been  to  increase  the  num- 
ber of  items  exempted.  But  every  such  exception  under 
the  law  adds  to  the  burdens  of  the  honest  taxpayer,  and 
every  evasion  of  taxation  also  renders  his  charge  the 
greater.  Here  is  not  distributive  justice,  but  concen- 
trated injustice. 

Another  large  proportion  of  the  personal  property 
owned  by  the  citizens  of  the  State  is  of  the  most  intangible 
character,  and  in  great  part  invisible  and  incorporeal,  such, 
for  instance,  as  negotiable  instruments  in  the  form  of  bills 
of  exchange,  State,  municipal,  and  corporate  bonds,  and,  if 


GENERAL   PROPERTY  TAX.  631 

actually  situated  in  other  States,  exempt  from  taxation 
where  they  are  held;  acknowledgments  of  individual  in- 
debtedness, and  a  number  of  similar  matters.  All  property 
of  this  character  is,  through  a  great  variety  of  circum- 
stances, constantly  fluctuating  in  value;  is  offset  by 
indebtedness  which  may  never  be  the  same  one  hour  with 
another;  is  easy  to  transfer,  and  by  simple  delivery  is,  in 
fact,  transferred  continually  from  one  locality  to  another, 
and  from  the  protection  and  laws  of  one  State  to  the  sov- 
ereignty and  jurisdiction  of  some  other.  It  is  not  to  be 
wondered,  therefore,  that  all  attempts  to  value  and  assess 
this  description  of  property  have  proved  exceedingly  un- 
satisfactory, and  that  nearly  every  civilized  comnmnity, 
with  the  exception  of  the  States  of  the  Federal  Union, 
have  long  ago  abandoned  the  project  as  something  wholly 
inexpedient  and  impracticable. 

The  differences  among  the  States  in  the  interpretation 
of  residence,  of  the  situs  of  the  property  taxed,  are  also 
an  objection  to  this  system  and  an  obstacle  to  its  applica- 
tion. The  want  of  uniformity  can  not  be  abolished  by 
enactments  of  law,  because  absolute  uniformity  of  laws 
would  not  insure  as  uniform  interpretation  of  their  pro- 
visions. The  rules  for  assessment  are  uniform  for  the 
officers  of  a  State,  but  the  returns  made  involve  such  dif- 
ferences in  the  application  of  the  rules  that  one  is  forced 
to  the  conclusion  that  a  misunderstanding  of  the  spirit  of 
the  law  exists,  colouring  differently  the  view  of  each  re- 
turning officer.  Discrimination  against  the  county  or 
municipality  and  discrimination  against  the  individual  are 
to  be  met  at  every  turn.  No  wording  of  the  law  can  elimi- 
nate this  personal  judgment  of  each  assessing  authority, 
and  the  supervision  of  the  returns  by  State  boards  of 
equalization  has  introduced  an  even  greater  departure 
from  justice,  as  a  majority,  based  upon  selfish  interests, 
may  be  had,  and  its  decision  may  readily  be  defended  as 
based  upon  good  and  sufficient  reasons.  An  appeal  to  the 
last  resort,  the  higher  courts,  may  produce  redress  against 
unjust  assessments,  but  each  case  must  be  decided  upon  its 
merits,  and  only  under  very  exceptional  circumstances — as 
in  the  recent  case  at  Tarrytown,  New  York,  where  striking 
and  general,  even  personal,  spite  had  been  shown  in  the 
tax  levy — can  a  number  of  taxpayers  find  it  their  interest 


632    THE  THEORY  AND  PRACTICE  OF  TAXATION. 

to  combine  and  carry  the  question  into  the  courts  for 
adjudication. 

Imperfect  in  theory,  the  machinery  of  the  general 
property  tax  is  imperfect.  With  at  })resent  fully  two 
thirds  of  the  personal  proj)erty  of  the  State  exempted  from 
taxation  by  law  or  by  cii'cumstances  growing  out  of  its 
condition,  or  the  natural  depravity  and  selfishness  of  the 
average  taxpayer,  and  with  a  large  part  of  the  other  third 
exempted  by  competing  nations  or  neighbouring  States, 
what  becomes  of  the  theory  so  generally  accepted  in  the 
United  States  that  in  order  to  tax  equitably  it  is  necessary 
to  tax  everything?  A  very  slight  examination  leads  to 
the  conclusion  that  it  is  the  most  imperfect  system  of  taxa- 
tion that  ever  existed;  that,  with  the  exception  of  moneyed 
corporations,  it  is  a  mere  voluntary  assessment,  which  may 
be  diminished  at  any  time  by  an  offset  of  indebtedness 
which  the  law  invites  the  taxpayers  to  increase  ad  infini- 
tum, borrowing  on  pledge  of  corporate  stocks.  United 
States  bonds,  legal-tender  notes,  etc.,  all  exempt  from 
taxation;  that  its  administration  in  res])ect  to  justice  and 
equity  is  a  farce  and  more  uncertain  and  hazardous  than 
the  chances  of  the  gaming  table;  and  that  its  continuance 
is  more  provocative  of  immorality  and  more  obstructive  of 
material  development  than  any  one  agency  that  can  pos- 
sibly be  mentioned.  A  stringent  enforcement  only  leads 
to  greater  perversions  and  a  wider  evasion.  A  lax  enforce- 
ment does  not  reduce  its  inequalities  and  general  want  of 
application  to  actual  conditions.* 

The  problem,  then,  is  wdiat  taxes  to  introduce  in 
place  of  this  confessed  failure  of  the  general  property 
tax. 

*  The  cominissioners  "have  no  confidence  in  any  system  of  in- 
quisition or  system  which  requires  assessors  to  be  clairvoyants;  to 
ascertain  thinjjs  impossible  to  be  ascertained  by  the  agencies  pro- 
vided in  the  law;  to  ascertain  the  indebtedness  of  the  taxpayer; 
to  ascertain  or  know  who  is  the  owner  of  property  at  a  given 
time  that  can  be  and  is  transferred  hourly  from  owner  to  owner 
by  telegraph  or  lightning,  and  that  may  be  transported  into  or 
out  of  the  jurisdiction  of  the  assessor  with  the  rapidity  of  steam. 
or  that  requires  assessors  or  taxpayers  to  make  assessments  on 
evidence  not  admissible  in  any  court,  civil  or  criminal,  in  any 
civilized  country  where  witches  are  not  tried  and  condemned  by 
caprice  or  malice  on  village  or  neighbourhood  gossip." 


SINGLE  TAX.  633 

There  can  be  little  doubt  that  the  desire  for  greater 
simplicity  in  taxation  is  generally  felt,  and  in  part  put  into 
practice.  The  mass  of  various  kinds  of  imposts,  added 
without  any  system  or  real  connection  or  relation  one  to 
another,  has  often  resulted  in  so  large  a  number  of  charges 
on  Government  account  as  to  defeat  itself.  The  French 
taxes  at  the  end  of  the  last  century,  with  their  added  fault 
of  inequality  and  injustice  in  distribution,  led  naturally  to 
the  theory  of  a  single  tax — the  inipot  unique  of  the  physio- 
crats— which  did  not  become  a  fact,  yet  registered  the 
protest  against  the  multiplicity  and  crying  oppressiveness 
of  the  remains  of  feudal  dues  and  fiscal  experiments  under- 
taken under  the  stress  of  an  empty  treasury.  So  it  has 
been  noted  at  the  present  time  that  where  an  opportunity 
has  offered  there  is  a  tendency  in  European  countries  to 
simplify  their  taxes,  and,  as  in  the  case  of  Switzerland, 
prepare  the  way  for  income  and  property  taxes.  It  is  a 
greater  dependence  on  such  direct  taxes  in  place  of  indirect 
taxes  that  has  distinguished  the  great  fiscal  changes  in 
recent  years.  Germany  may  have  wished  to  establish  a 
brandy  monopoly,  and  Russia  may  resort  to  a  monopoly  of 
the  manufacture  and  sale  of  distilled  spirits.  But  Eng- 
land increases  her  death  duties,  France  and  the  United 
States  seek  to  frame  acceptable  taxes  on  income,  and 
Switzerland  succeeds  in  modifying  her  system  in  the  line 
of  direct  taxes. 

There  is  an  earnest  movement  in  favour  of  a  single 
tax  on  the  value  of  land,  exclusive  of  other  real  property 
connected  with  it.  As  involving  a  question  of  abstract 
justice  the  proposition  has  much  in  its  favour,  but  it  can 
not  be  denied  that  practical  obstacles  oppose  its  adoption. 
The  recent  commission  on  taxation  in  Massachusetts  thus 
treats  of  it:  "  It  proposes  virtually  a  radical  change  in  the 
ownership  of  land,  and  therefore  a  revolution  in  the  entire 
social  body.  In  this  form  of  taxation  all  revenue  from 
land  alone  is  to  be  appropriated — that  is,  the  beneficial 
ownership  of  land  is  to  cease.  Whether  or  not  this  sys- 
tem, if  it  had  been  adopted  at  the  outset  and  had  since 
been  maintained,  would  have  been  to  the  public  advantage 
may  be  an  open  question,  but  it  would  certainly  seem  to  be 
too  late  now  to  turn  to  it  in  the  manner  proposed.  In  any 
event,  it  involves  properly  not  questions  of  taxation,  but 
41 


634    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

questions  as  to  the  advantage  or  disadvantage  of  private 
property  in  land."  * 

If  securities  are  to  be  taxed,  tlie  methods  adopted 
should  avoid  a  double  taxation,  and  an  attempt  to  reach 
capital  outside  of  the  State.  It  is  evident  that  a  State, 
like  Massachusetts,  which  taxes  the  foreign  holder  of 
shares  in  its  corporations  as  well  as  the  shares  of  foreign 
corporations  held  by  its  own  citizens,  is  inviting  a  danger- 
ous reprisal  from  other  States.  "  Wherever  the  owner 
may  be,  if  the  corporation  is  chartered  within  the  State 
the  Commonwealth  collects  the  tax  on  the  shares.  Wher- 
ever the  corporation  may  be,  if  the  owner  is  within  the 
State  the  Commonwealth  also  collects  the  tax  (in  theory 
of  law  at  least)."  If  this  be  the  best  possible  system,  and 
it  is  supposed  Massachusetts  assumes  it  to  be,  general 
double  taxation  would  follow  its  adoption  by  the  other 
States.  The  effort  to  c^rry  this  rule  into  practice  proves 
its  injustice  as  well  as  futility.  The  most  searching  and 
inquisitorial  methods  of  seeking  such  property  will  not 
avail  to  reach  a  good  part  of  it,  and  this  results  in  adding 
inequality  of  burden  to  its  other  difficulties.  Evasion  is 
too  simple  a  process  to  be  unused,  and  the  heavier  the  rate 
of  tax  the  greater  will  be  the  resort  to  evasion  and  even  to 
perjury,  express  or  implied.  The  fundamental  cause  of 
the  failure  lies  in  this,  "  the  endeavour  to  tax  securities, 
which  are  no  more  than  evidences  of  ownership  or  interest 
in  property,  and  which  offer  the  easiest  means  of  conceal- 
ment and  evasion,  by  the  same  methods  and  at  the  same 
rate  as  tangible  property  situated  on  the  spot." 

This  inherent  difficulty  can  be  cured  only  by  abandon- 
ing the  attempt  to  tax  directly  securities  or  evidences  of 
debt,  representing  ownership  or  interest  in  property  be- 
yond the  limits  of  the  taxing  authority.  In  the  case  of 
the  securities  of  home  companies  they  may  be  readily 
taxed  at  the  source,  but  in  the  case  of  foreign  corporations 
it  is  only  by  methods  almost  revolting  in  their  injustice 
and  treatment  of  the  taxpayer  that  even  a  partial  success 
can  be  secured.  The  dependence  upon  the  sworn  state- 
ment or  declaration  of  the  taxpayer  is  known  to  be  ex- 
tremely faulty  and  to  offer  a  premium  on  untruthfulness. 

*  Report  of  the  Massachusetts  Commission,  1897,  p.  74. 


BUILDING-OCCUPANCY  TAX.  635 

So  long  as  this  dependence  is  retained  in  whole  or  in  part 
in  a  system  for  taxing  personal  property,  the  results  must 
be  unsatisfactory.  The  most  judicious,  even  if  it  seems 
the  most  radical,  remedy  is  to  abandon  the  taxation  of 
securities.  Certainly  it  would  be  well  to  put  an  end  to 
the  Massachusetts  plan  of  taxing  securities  representing 
property  outside  of  the  State,  for  that  involves  double 
taxation  wherever  it  has  been  possible  to  impose  the  tax. 
What  can  be  reached  only  by  methods  at  all  times  trying 
and  difficult,  and  sometimes  very  demoralizing,  should  not 
be  permitted  to  remain  a  permanent  feature  of  the  revenue 
system  of  a  State. 

The  New  York  commission  of  1870  proposed  to  limit 
the  State  taxes  to  a  very  small  number  of  objects.  That 
they  be  "  levied  on  a  comparatively  broad  basis — like  real 
estate — with  certainty,  proportionality,  and  uniformity  on 
a  few  items  of  property,  like  the  franchises  of  all  moneyed 
corporations  enjoying  the  same  privileges  within  the  State, 
and  on  fixed  and  unvarying  signs  of  property,  like  rental 
values  of  buildings " — such  was  the  scheme  proposed. 
The  leading  object  to  be  attained  was  equality  of  burdens, 
and  a  second  object  of  quite  as  great  importance  was  sim- 
plicity in  assessment  and  collection.  Granting  that  real 
estate,  lands,  and  buildings  were  taxed  on  a  full  and  fair 
market  valuation,  and  that  corporations  contributed  their 
share  toward  the  expenses  of  the  State,  it  remained  to 
devise  a  tax  that  should  reach  all  other  forms  of  property 
that  could  be  properly  and  easily  assessed.  This  tax  was 
to  be  known  as  the  "  building-occupancy  "  tax,  and  was  to 
be  levied  on  an  additional  assessment  of  a  sum  equal  to 
three  times  the  annual  rent  or  rental  value  of  all  the  build- 
ings on  the  land.*     Nearly  thirty  years  later  the  Massa- 

*  The  New  York  commission  of  1870  submitted  two  pi'opositions 
on  this  point: 

1.  Tax  the  house  or  building  as  real  estate  separately,  at  the 
same  rate  of  valuation  as  the  land — that  is,  fifty  per  cent — and  then 
assuming  that  the  value  of  the  house  or  building,  irrespective  of  its 
contents,  be  such  contents  furniture,  machinery,  or  any  other  chat- 
tels whatsoever,  is  the  sign  or  index  which  the  owner  or  occupier 
puts  out  of  his  personal  property,  tax  the  house  or  building  on  a 
valuation  of  fifty  per  cent  additional  to  its  real-estate  valuation, 
as  the  representative  value  of  such  personal  property;  or,  in  other 
words,  tax  the  land  separately  on  fifty  per  cent  of  its  fair  market- 


636    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

chusetts  commission  proposed  a  modified  form  of  this  tax. 
An  annual  rental  value  of  four  hundred  dollars  was  to  be 
exempt  from  taxation,  but  ten  per  cent  was  to  be  levied  on 
all  rental  values  in  excess  of  that  amount. 

"  The  advantages  of  a  tax  on  house  rentals,"  said  the 
commission,  "  can  be  easily  stated.  It  is  clear,  almost  im- 
possible of  evasion,  easy  of  administration,  well  fitted  to 
yield  a  revenue  for  local  uses,  and  certain  to  yield  such  a 
revenue.  It  is  clear,  because  the  rental  value  of  a  house 
is  comparatively  easy  to  ascertain.  The  tax  is  based  on  a 
part  of  a  man's  affairs  which  he  publishes  to  all  the  world. 
It  requires  no  inquisition  and  no  inquiry  into  private 
matters;  it  uses  simply  the  evidence  of  a  man's  means 
which  he  already  offers."  *  If  this  tax  were  to  be  given  it 
would  be  possible  to  wipe  out  all  the  tax  on  incomes  from 
"  profession,  trade,  or  employment,"  to  abolish  the  exist- 
ing assessments  on  personal  property.  The  effects  would 
be  far-reaching.  If  loans  of  money  are  free  from  taxation, 
the  purchasing  power  of  money  in  the  same  degree  must 
diminish,  which  simply  means  that  the  purchasing  power 
of  farms  and  products  of  farms  for  money  must  to  the  same 
extent  increase;  hence,  the  borrower  on  bond  and  mort- 
gage will  not  be  subject  to  double  taxation — first,  in  the 
form  of  increased  rate  of  interest,  and  then  in  taxation  of 
his  real  estate — and  hence  the  farmer  or  landowner  who 
is  not  in  the  habit  of  either  lending  or  borrowing  money 
will  find  his  ability  to  meet  additional  taxation  on  his  land 
increased  in  additional  value  of  land  and  products  of  land 
in  proportion  as  the  tax  is  removed  from  money  at  interest. 
Also,  the  exemption  of  the  products  of  farms  and  things 

able  valuation,  and  tax  the  building  apart  from  the  land,  as  repre- 
senting the  owner's  personal  property,  on  a  full  valuation,  as  indi- 
cated bv  the  rent  actually  paid  for  it  or  its  estimated  rental  value. 
Or— 

2.  Tax  buildings  conjointly  with  land  as  real  estate  at  a  uniform 
valuation ;  and  then  as  the  eqviivalent  for  all  taxation  on  personal 
property,  tax  the  occupier,  be  he  owner  or  tenant  of  any  build- 
ing or  portion  of  any  building  used  as  a  dwelling,  or  for  any  other 
purpose,  on  a  valuation  of  three  times  the  rental  or  rental  value 
of  the  premises  occupied.  Tenement  houses  occupied  by  more  than 
one  family,  or  tenement  houses  having  a  rental  value  not  in  excess 
of  a  fixed  sum,  to  be  taxed  to  the  owner  as  occupier. — Report, 
p.  107. 

*  Massachusetts  Report,  p.  106. 


TAX  ON  RENTAL  VALUE.  637 

consumed  on  farms  from  taxation  will  give  a  corresponding 
increased  value  to  compensate  for  tlie  "  building-occu- 
pancy "  tax.  Tenants  controlled  by  all-pervading  natural 
laws  can  and  will  give  increased  rents,  if  their  personal 
property  is  exempt  primarily  from  taxation.  The  average 
profits  of  money  at  interest  or  of  dealings  in  visible  per- 
sonal property  free  from  taxation  can  not  exceed,  for  any 
considerable  length  of  time,  the  average  profits  of  real 
estate,  risk  of  investment  and  skill  in  management  taken 
into  consideration;  and  therefore  the  real  pressure  of  taxa- 
tion under  the  proposed  system  will  finally  be,  like  atmos- 
pheric pressure,  or  pressure  of  water,  on  all  sides,  and  by  a 
natural  uniform  law  executed  upon  all  property  in  every 
form  used  and  consumed  in  the  State.  Persons  must  oc- 
cupy buildings  and  business  must  be  done  in  buildings,  and 
through  these  visible  instrumentalities  capital  can  be 
reached  by  a  rule  of  fractional  uniformity,  and  by  a  sim- 
ple, plain,  and  economical  method  of  assessment  and  col- 
lection. 

This  building-occupancy  tax,  or  tax  on  rental  value, 
does  not  preclude  a  supplementary  tax  on  corporations. 

Much  as  has  been  said  of  the  onerous  burdens  of  taxa- 
tion endured  by  individuals  compared  with  those  of  cor- 
porations, and  especially  corporations  enjoying  certain 
rights  or  franchises  in  public  streets  and  highways  or  cor- 
porations of  a  more  or  less  public  character.  The  phe- 
nomenal growth  of  municipalities  has  been  one  of  the 
notable  social  movements  of  the  last  twenty-five  years. 
The  drift  of  population  from  the  country  districts  to  cities 
has  increased  with  each  year,  and  finds  an  explanation  in 
many  causes.  The  opportunities  offered  in  a  city  for 
advancement  are  greater  and  more  numerous;  the  monot- 
ony of  farm  life  does  not  keep  the  young  at  home,  but 
drives  them  for  excitement  and  profit  to  the  great  centres 
of  population.  The  economic  changes  of  a  half  century 
also  have  their  influence.  The  competition  of  new  re- 
gions, better  adapted  for  certain  cultures  on  a  commer- 
cial scale,  has  reduced  the  profitableness  of  older  and  more 
settled  localities,  where  comparatively  costly  methods 
must  be  resorted  to  if  the  fertility  of  the  land  is  to  be 
maintained.  The  wheat  fields  of  the  West  narrowed  the 
margin  of  profit  in  New  England  farming,  while  the  sheep 


638    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

and  cattle  ranges  of  the  West  made  it  impossible  for  the 
same  quality  of  live  stock  to  be  raised  for  profit  in  the  East. 
Farms  were  abandoned,  and  the  younger  blood  went  West 
to  grow  up  with  the  country,  or  into  the  cities  to  struggle 
for  a  living.  Further,  the  advances  in  agriculture,  the 
application  of  more  productive  methods,  and  the  intro- 
duction of  machinery  have  reduced  the  demand  for  labour 
in  the  rural  districts,  and  this  has  led  to  a  migration  to  the 
cities. 

The  result  of  this  has  been  an  immense  development  of 
city  life,  and  with  it  an  ever-increasing  field  for  invest- 
ment in  corporate  activities.  The  supply  of  water  is 
usually  in  the  city's  control,  but  the  manufacture  and  sale 
of  gas,  the  production  and  distribution  of  electricity,  the 
street  railways,  telegraph,  and  telephone  interests  are 
private  corporations  formed  for  profit  and  using  more  or 
less  the  public  highways  in  the  conduct  of  their  various 
enterprises.  A  grant  of  a  street  or  highway  for  a  railway 
or  electric-wire  subway  generally  involves  a  monopoly  of 
that  use,  and  the  privilege  or  franchise  may  become  more 
valuable  with  the  mere  growth  in  the  population  of  the 
cities.  Assured  against  an  immediate  competition,  there 
is  a  steady  increment  in  the  value  of  the  franchise,  and  in 
the  case  of  a  true  monopoly  ther€  seems  to  be  no  limits  to 
its  possible  growth. 

An  instance  of  this  nature  is  so  striking  in  its  relations 
and  so  pertinent  to  the  present  discussion  that  attention  is 
asked  to  it.  In  the  reign  of  James  I  water  was  supplied 
by  two  or  three  conduits  in  the  principal  streets  of  London, 
and  the  river  and  suburban  springs  were  the  sources  of 
supply.  Large  buildings  were  furnished  with  water  by 
tapping  these  conduits  with  leaden  pipes,  but  other  build- 
ings and  houses  were  supplied  by  "  tankard  bearers,"  who 
brought  water  daily.  A  jeweller  of  the  city,  Hugh 
]\Iyddleton  by  name,  believed  something  better  could  be 
done,  and  he  proposed  to  bring  water  from  Hertfordshire 
by  a  "new  river."  He  embarked  in  the  undertaking, 
sank  his  fortune  in  its  conduct,  and  appealed  to  the  king 
for  assistance.  James  granted  this  aid,  taking  one  half  of 
the  shares  of  the  company — thirty-six  out  of  the  seventy- 
two  shares  into  which  it  was  divided.  The  shares  that 
remained  received  the  name  of  "adventurer's  moiety." 


DEFINITION  OF   FRANCHISE.  639 

The  work  was  completed  in  1613,  and  water  was  then  let 
into  the  city. 

So  little  was  the  measure  appreciated  that  its  first 
years  were  troublous  ones  for  the  shareholders.  The 
squires  objected  to  the  river,  believing  it  would  overflow 
their  lands  or  reduce  them  to  swamps  and  destroy  the 
roads.  The  city  residents  adopted  the  use  of  the  water 
slowly.  The  shares  were  nominally  worth  £100  apiece, 
but  for  nearly  twenty  years  the  income  was  only  12s.,  or 
$3,  per  share.  In  1736  a  share  was  valued  at  £115  10s., 
and  by  1800  it  had  risen  to  £431  8s.  With  the  first  years 
of  this  century  the  company  prospered,  and  its  benefits 
were  widely  applied,  reflecting  this  change  in  the  value  of 
its  capital.  In  1820  a  share  was  worth  £11,500  and  in 
1878  the  fraction  of  a  share  was  sold  at  a  rate  which 
made  a  full  share  worth  £91,000.  In  1878  the  dividend 
distributed  to  each  share  was  £3,610.  Eleven  years  later, 
in  July,  1889,  a  single  share  was  sold  for  £122,800,  or 
nearly  $600,000.  The  nominal  capital  of  the  company  in 
1884  was  £3,369,000,  and  besides  its  water  franchise  it 
held  large  estates  and  valuable  properties.  While  the 
actual  real  estate  controlled  by  the  corporation  accounts 
for  some  of  this  remarkable  rise  in  the  value  of  the  shares, 
a  greater  and  more  lasting  cause  was  the  possession  of  an 
almost  exclusive  privilege  or  franchise  which  assured  a 
handsome  and  ever-increasing  return  on  the  investment. 
Had  all  the  other  property  been  deducted  from  the  state- 
ment of  the  company's  assets,  there  would  have  remained 
this  intangible  and  unmeasurable  right  created  and  con- 
ceded by  its  charter  and  long  usance. 

A  definition  of  a  franchise  has  been  given  by  the 
Supreme  Court  in  terms  of  sufficient  general  accuracy  to 
be  adopted:  "  A  franchise  is  a  right,  privilege,  or  power  of 
public  concern  which  ought  not  to  be  exercised  by  private 
individuals  at  their  mere  will  and  pleasure,  but  which 
should  be  reserved  for  public  control  and  administration, 
either  by  the  Government  directly  or  by  public  agents  act- 
ing under  such  conditions  and  regulations  as  the  Govern- 
ment may  impose  in  the  public  interest  and  for  the  public 
security."  *     A  necessary  condition,  then,  is  a  public  inter- 

•  California  vs.  Southern  Pacific  Railroad,  127  U.  S.,  40. 


640    THE  THEORY  AND  PRACTICE  OP  TAXATION. 

est  in  the  occupation  or  privileges  to  be  followed.  The 
good  will  of  a  person  or  individual  trader  is  not  a  franchise 
in  this  sense,  though  a  franchise  may  he  enjoyed  by  an 
individual  as  well  as  by  a  cor{)oration,  and  good  will  may 
rest  upon  the  pi-ivilege  implied  in  the  franchise. 

The  recognition  of  franchises,  a  species  of  property  "  as 
invisible  and  intangible  as  the  soul  in  a  man's  body,"  as  a 
proper  object  for  taxation  is  now  regarded  by  many  as 
beyond  any  dispute.  It  is  peculiarly  appropriate  as  a 
source  of  revenue  for  the  exclusive  use  of  the  State, 
inasmuch  as  the  grant  of  franchises  emanates  from 
the  State  in  its  sovereign  capacity.  In  the  case  of 
Morgan  vs.  The  State  of  Louisiana,  Justice  Field,  of 
the  Supreme  Court  of  the  United  States,  said:  "  The 
franchises  of  a  railroad  corporation  are  rights  or  privi 
ileges  which  are  essential  to  the  operation  of  the  cor- 
poration and  without  which  its  roads  and  works  would  be 
of  little  value,  such  as  the  franchise  to  run  cars,  to  take 
tolls,  to  appropriate  earth  and  gravel  for  the  bed  of  its 
road,  or  water  for  its  engines,  and  the  like.  They  are  posi- 
tive rights  or  privileges,  without  the  possession  of  which 
the  road  or  company  could  not  be  successfully  worked. 
Immunity  from  taxation  is  not  one  of  them."  *  Further, 
the  extent  to  which  this  taxation  of  franchises  may  be 
carried  rests  entirely  in  the  discretion  of  the  taxing  power, 
subject  only  to  constitutional  restrictions. 

The  great  difficulty  in  applying  such  a  tax  lies  in  the 
methods  of  reaching  an  understanding  on  the  value  of  the 
franchise.  How  can  this  indefinite  something  be  made 
visible  on  the  tax  books?  In  many  instances  the  franchise 
may  be  regarded  as  inseparable  from  the  real  property  of 
the  corporation.  The  rails  of  a  tramway,  the  poles  and 
wires  of  a  telegraph  company,  the  pipes  and  conduits  of  a 
gas  company,  are  real  and  tangible  things,  necessary  to  a 
proper  conduct  of  the  respective  functions  of  the  corpora- 
tions. But  the  right  to  lay  tracks  in  the  public  streets,  to 
sink  pipes  under  the  streets,  or  to  string  wires  overhead 
is  as  necessary  a  possession  and  as  essential  to  the  perform- 
ance of  what  the  corporation  was  created  to  accomplish. 
Whether  this  permits  the  franchise  to  be  regarded  as  "  real 

*  93  U.  S.  Reports,  pp.  217,  224. 


NEW  YORK  FRANCHISE  LAW,  641 

estate  "  and  so  offers  it  for  taxation  is  a  question  of  some 
theoretical  interest,  but  of  little  practical  importance.* 
Unless  the  franchise  is  regarded  in  this  way,  as  belonging 
to  real  estate,  or  as  forming  a  taxable  entity  apart  from 
other  property,  it  would  be  simpler  to  reach  it  through 
a  corporation  tax  in  one  of  the  many  ways  open  for  apply- 
ing that  tax. 

Enough  has  been  said  to  demonstrate  the  extremely 
faulty  condition  of  tax   methods  in   the   United   States. 

*  A  recent  law  of  New  York  is  very  full  on  this  point: 
"  The  terms  '  land,'  '  real  estate,'  and  '  real  property,'  as  used  in 
this  chapter,  include  the  land  itself  above  and  under  the  water,  ail 
buildings  and  other  articles  and  structures,  substructures,  and 
superstructures,  erected  upon,  under,  or  above,  or  affixed  to  the 
same;  all  wharves  and  piers,  including  the  value  of  the  right  to  col- 
lect wharfage,  cranage,  or  dockage  thereon;  all  bridges,  ail  tele- 
graph lines,  wires,  poles,  and  appurtenances;  all  supports  and  in- 
closures  for  electrical  conductors  and  other  appurtenances  upon, 
above,  and  under  ground;  all  surface,  underground,  or  elevated  rail- 
roads, including  the  value  of  all  franchises,  rights  or  permission  to 
construct,  maintain,  or  operate  the  same  in,  under,  above,  on,  or 
through  streets,  highways,  or  public  places;  all  railroad  structures, 
substructures,  and  superstructures,  tracks,  and  the  iron  thereon, 
branches,  switches,  and  other  fixtures  permitted  or  authorized  to  be 
made,  laid,  or  placed  on,  upon,  above,  or  under  any  public  or  private 
road,  street,  or  grounds;  all  mains,  pipes,  and  tanks  laid  or  placed 
in,  upon,  above  or  under  any  public  or  private  street  or  place  for 
conducting  steam,  heat,  water,  oil,  electricity,  or  any  property, 
substance,  or  product  capable  of  transportation  or  conveyance 
therein,  or  that  is  protected  thereby,  including  the  value  of  all 
franchises,  rights,  authority,  or  permission  to  construct,  maintain, 
or  operate  in,  under,  above,  upon,  or  through  any  streets,  liighways, 
or  public  places;  any  mains,  pipes,  tanks,  conduits,  or  wires,  with 
their  appurtenances,  for  conducting  water,  steam,  heat,  light,  power, 
gas,  oil,  or  other  substance,  or  electricity  for  telegraphic,  telei)honic, 
or  other  purposes;  all  trees  and  underwood  growing  upon  land,  and 
all  mines,  minerals,  quarries,  and  fossils  in  and  under  the  same, 
except  mines  belonging  to  the  State.  A  franchise,  right,  authority, 
or  permission,  specified  in  this  subdivision,  shall  for  the  purposes 
of  taxation  be  known  as  a  '  special  franchise.'  A  special  franchise 
shall  be  deemed  to  include  the  value  of  the  tangible  property  of 
a  person,  copartnership,  association,  or  corpoi-ation.  situated  in, 
upon,  under,  or  above  any  street,  highway,  public  place,  or  public 
waters,  in  connection  with  the  special  franchise.  The  tangible 
property  so  included  shall  be  taxed  as  a  part  of  the  special  fran- 
chise." The  reason  for  classing  franchises  as  real  estate  was  that 
under  the  existing  laws  of  New  York  a  franchise  could  not  be 
assessed  as  personal  property,  as  the  bonded  debt  could  then  be 
deducted,  leaving  little  or  nothing  to  be  taxed. 


642    THE  THEORY  AND   PRACTICE  OF  TAXATION. 

Uniformity  is  highly  desirable,  but  equality  of  burden  is 
even  more  to  be  desired.  The  advances  in  this  direction 
have  been  few,  and  accomplished  only  partially  in  a  few- 
States.  The  machinery  for  making  assessments  is  only  a 
part  of  the  problem,  as  the  intention  of  the  law,  the 
spirit  of  the  act,  is  of  even  higher  importance  in  securing 
justice  and  moderation.  If  these  essays,  incomplete  as 
they  must  of  necessity  be,  have  led  to  a  better  comprehen- 
sion of  the  chaotic  condition  existing  now  and  of  the  diffi- 
culties to  be  overcome,  their  object  will  have  been  attained. 
The  remedy  may  be  left  for  time  to  effect. 


INDEX 


Actualities,  subject  to  taxation,  472. 

Adoram,  66. 

Alcavala,  74;  in  Mexico,  135,  re- 
peal, 140. 

Alcohol,  free  in  the  arts,  11  ;  Swiss 
monopoly,  187. 

Alienation  of  taxing  power,  279. 

Allen  vs.  Jay,  292. 

Anthropology  and  taxation,  72. 

Anti-option  bill,  260. 

Anticipation  of  taxes,  36. 

Apportionment  of  direct  taxes  in 
United  States,  236,  357,  367,  547, 
549. 

Arabi  Pasha,  revolt  under,  143. 

Argyll,  Duke  of,  on  taxation,  598,  n. 

Aristotle  on  majority  rule,  86,  n. 

Assessments,  in  Rome,  97 ;  in  early 
Massachusetts,  244;  of  personal 
property,  402 ;  for  local  taxation, 
628 ;  uniform  day,  406. 

Athens,  sources  of  revenue,  85. 

Atkinson,  Edward,  estimate,  33 ;  defi- 
nition of  tax,  202 ;  taxes  on  produc- 
tion, 390. 

Augustus,  taxes  imposed  by,  89. 

Austria-Hungary,  general  taxes,  197, 
n. ;  taxation  of  income,  522,  538. 

Bachelors,  taxation  of,  95,  331. 

Bacon,  Theodore,  on  protection,  315,  n. 

Baron's  war,  286. 

Beards,  taxation  of,  198,  n. 

Bengal,  land  assessment,  164. 

Beer,  internal  duty,  56 ;  consumption, 

58. 
Beet  sugar,  bounties,  307. 
Bluntschli,  on  taxation,  598,  n. 
Boadicea,  revolt  of,  93. 
Boards  of  equalization,  397. 
Boisguillebert,  126. 


Bond  case,  foreign-held,  452. 
Bonds,  government,  exempted,  481. 
Borax  lands,  587. 
Bounties,  constitutional  aspects,  302, 

306  ;  perversion  of,  309 ;  on  sugar, 

299,  307. 
Boyd  vs.  United  States,  518. 
Brazil,  taxation  in,  155. 
Breadstutfs  and  population,  596. 
Brown,  Justice,  quoted,  3,  n. 
Brown  vs.  Maryland,  276. 
Building-occupancy  tax,  636. 
Burke,  Edmund,  on  theory,  225,  n. 

Cadastre  in  France  and  Prussia,  622. 

Cade,  Jack,  67. 

Caesar,  render  unto,  72. 

California,  Constitution  of  1879,422; 
taxation  of  mortgages,  487 ;  taxation 
of  titles,  474. 

Canada,  commercial  relations  with, 
581,  n. 

Cantons  of  Switzerland,  184. 

Capital  and  property,  467 ;  taxation 
of,  521 ;  outflow  of  British,  2. 

Carey,  Henry  C,  on  indirect  taxation, 
349  ;  on  taxation  of  industry,  217. 

Carriage  tax  ( United  States),  360. 

Castine,  Maine,  customs  question,  311. 

Ceylon,  poll  tax  in,  333. 

Chase,  S.  P.,  estimates  of  revenue,  25, 

Charters  as  contracts,  279. 

Chattels  real  and  personal,  444. 

China,  budget  of,  77 ;  customs  reve- 
nue, 78 ;  land  ownership,  76  ;  land 
tax,  77 ;  likin,  78 ;  remission  of 
taxes,  78 ;  salt  monopoly,  78 ;  ter- 
minal tax,  79  ;  transit  passes,  78. 

Choses  in  action,  taxation  of,  485. 

Cicero  against  Verres,  70. 

Circulation,  tax  on  bank,  263. 

643 


^f6 


644    THE  THEORY  AND  PRACTICE   OF  TAXATION. 


City  and  country,  561. 

Class  legislation,  9,  551. 

Clergy  on  taxation,  6. 

Cleveland,  President,  quoted,  250, 
262,  w. 

Coffee  import  returns,  1865,  36. 

Cole  vs.  La  Grange,  293. 

Col  well,  Stephen,  20. 

Commerce,  interstate,  275 ;  taxation 
of  instruments  of,  412. 

Compulsion  and  direct  ta.xes,  341. 

Congress  as  a  disturbing  influence, 
619. 

Connecticut,  franchises  in,  280 ;  tax 
experience,  415,  493. 

Constitution,  United  States,  forma- 
tion of,  69  ;  apportionment  under, 
357,  367,  547 ;  on  taxation,  545 ; 
Fourteenth  Amendment,  508. 

Constitutions,  State,  239,  628. 

Consumers  pay  customs  duties,  577. 

Consumption,  taxation  falls  on,  597. 

Contracts,  tax  on,  274. 

Convention,  constitutional,  234,  357, 
547. 

Cooley,  Thomas  M.,  quoted,  289,  305. 

Copper,  import  duty  on,  258. 

Copyrights  as  property,  464. 

Corporations,  municipal,  and  taxa- 
tion, 242. 

Corvee,  in  France,  124;  in  Egypt, 
142, 146. 

Cossa,  Luigi,  on  taxation,  63. 

Cost  of  production,  taxes  enter  into, 
583. 

Cotton,  profits  on,  during  famine,  32. 

Country  and  city  compared,  561. 

Court  of  the  Exchequer,  108,  n. 

Credits  as  property,  450. 

Crows  and  bounties,  309. 

Cuba,  taxation  in,  14. 

Cuissage,  124. 

Curtis,  George  T.,  on  protective  du- 
ties, 260,  n. 

Customs,  379. 

Debt,  deduction  for,  375;  situs  of, 
498 ;  taxation,  479,  493. 


Deeds  as  property,  469. 

Definitions,  want  of,  7. 

Democracy  and  taxation,  16. 

Denmark,  taxation  of  income,  523. 

Desmarets,  127. 

Dice,  tax  on,  327. 

Difl'usion  of  taxes,  569 ;  law  of,  584, 

597  ;  customs,  575  ;  land  tax,  589. 
Distilleries,    number    of,   in    United 

States,  46. 
Dixme  Roy  ale,  125. 
Dodgers  of  taxation,  433. 
Domain,  eminent,  238. 
Domains,  royal,  102. 
Dooming  in  Massachusetts,  431,  530. 
Droit  du  seigneur,  124. 
Druids,  revenue  methods,  101. 

Egypt,  141 ;  corvee  in,  142,  146  ;  debt 
of,  144 ;  fiscal  commission,  145 ;  land 
tax,  147;  reforms,  150;  repeal  of 
taxes,  147, 152. 

Emerson,  R.  W.,  quoted,  62,  n. 

England,  in  Egypt,  143,  n. :  excise, 
114;  feudal  taxes,  108;  indirect 
taxes,  113 ;  land  tax  and  American 
Revolution,  115;  meal  tax,  115; 
poll  tax,  331 ;  representation  and 
taxation,  110;  revolution,  68;  tenure, 
108.     See  Great  Britain. 

Ensley,  Enoch,  rules  of  taxation,  556. 

Equalization,  boards  of,  397. 

Erie  Railroad  opera  house,  252. 

Europe,  sugar  bounties,  308. 

Excise,  380. 

Exemption,  411,  481,  541,  602.  ■? ^f 

Expediency  in  taxation,  15. 

Extradition  and  tax  violations,  312. 

Extravagance,  cost  of,  241. 

Farm-rating  act,  Great  Britain,  540. 

Farmers'  Alliance,  Maryland,  15. 

Farmers-general,  France,  129. 

Farming  of  taxes,  605. 

Fiction,  legal,  441,  n. 

Field,  Stephen  J.,  on    income    tax, 

553. 
Fines,  feudal,  106 ;  in  Greece,  86. 


INDEX. 


645 


Fish,  royal,  107. 

Fisheries,  encouragement  of,  302. 

Fraction  of  a  day  in  law,  319,  n. 

France,  cadastre,  622;  corvee,  124; 
exemption  of  clergy,  120;  gabelle, 
or  salt  tax,  121 ;  income  tax,  517, 
538;  indirect  taxes,  121;  list  of 
taxes,  123;  mobiliary  tax,  519;  re- 
forms offered  by  Vauban  and  Bois- 
guillebert,  125;  Revolution  in,  69, 
128 ;  taille,  119  ;  taxation  in,  76, 117  ; 
transfers,  123;  window  tax,  519. 

Franchise,  definition,  639 ;  taxation, 
379,  637. 

Gabelle,  in  France,  121. 

Garfield,  James  A.,  on  Mr.  Wells,  39. 

George,  Henry,  66. 

Germany,  bounties  on  sugar,  308; 
exemptions  under  income  tax,  537. 

Godkin,  Edwin  L.,  on  protection, 
253,  n. 

God's  truce,  101. 

Great  Britain,  direct  ta.^es,  356 ;  false 
idea  of  taxation,  574 ;  income  tax, 
525 ;  local  taxation,  392,  624 ;  per- 
sonal property,  625 ;  revenue  by 
taxation,  14.    See  England. 

Greece,  decline  of,  67 ;  taxation  in,  85. 

Greeley,  Horace,  quoted,  60. 

Guyot,  Yves,  on  income  tax,  520. 

Hamilton,  Alexander,  on  carriage  tax, 

362 ;  on  taxation,  400. 
Hayes,  S.  S.,  20. 
History,  taxation  in,  66,  74. 
Hoar,  George  F.,  quoted,  253,  n. 
Holland,  taxation  in,  74. 
Hylton  vs.  United  States,  360. 

Ideas  as  property,  465. 

Hlinois,  tax  theories,  10. 

Imposts,  380. 

Impot  unique,  633. 

Income,  taxation  of,  514;  direct  tax, 
363 ;  discriminating  tax  on,  533 ; 
Austria-Hungary,  522,  538 ;  Den- 
mark, 523 ;  France,  517,  519 ;  Ger- 


many, 524;  Great  Britain,  525; 
India,  169;  Italy,  540;  Rome,  518; 
Switzerland,  523;  United  States, 
305,  528,  545. 

Indebtedness,  taxation  of,  479,  493. 

India,  British,  customs  duties,  168 
excise,  167 ;  food  of  people,  177 
income  tax,  169;  land  tax,  163 
opium,  166,  174;  population,  158 
poverty,  159  ;  salt  duty,  165 ;  stamps, 
168;  taxation,  76,  158;  trade  in 
treasure,  173,  v. 

Inequality  of  taxation,  323. 

Inheritance  tax,  621. 

Internal  revenue,  United  States,  26, 
33,  619. 

Investments,  inducements  to,  559. 

Ismail  Pasha,  career  of,  144. 

Italy,  income  tax,  540 ;  oppressive 
and  dishonest  methods,  228. 

Japan,    land    tax,   82 ;    poverty,   81 ; 

taxation,  80  ;  treaties,  83. 
Jefferson,  Thomas,  quoted,  3,  n. 
Jews,  taxation  among,  66,  70 ;  plunder 

of,  104. 

Kirtland  vs.  Hotchkiss,  493. 
Kleber,  General,  in  Egypt,  155. 

Labour,  as  source  of  wealth,  462,  587. 

Land,  and  personal  property,  419 ; 
direct  taxes,  368 ;  incidence  of  tax, 
587  ;  feudal  duties,  102;  taxation  in 
China,  77;  Egypt,  148  ;  India,  163; 
Japan,  82 ;  tenures,  75 ;  value  of, 
558,  587. 

Law,  economics  and,  7. 

Legacy  tax,  in  Rome,  89 ;  in  United 
States,  620. 

Legislation,  class,  9,  551. 

Leroy-Beaulieu,  Paul,  on  French 
taxation,  14,  n. ;  on  income  tax,  539. 

Lewis,  George  Cornewall,  on  valua- 
tions, 627. 

Likin,  in  China,  78. 

Lincoln,  Abraham,  quoted,  19. 

Literature,  taxation  in,  73. 


646    THE   THEORY    AND   PRACTICE   OP  TAXATION. 


Liturgies  in  Greece,  87. 

Loan    Association    vs.    Topeka,  231, 

294. 
Local  taxation  in  Great  Britain,  391, 

624. 
Locke,  John,  on  ta.xation,  601,  n. 
London  water  supply,  638. 
Loti  shui  in  China,  79. 
Lotteries,  State,  605  ;  taxation  of,  262. 
Loubet  on  French  taxation,  14. 
Louis  XIV,  127,  223. 
Lowell  vs.  Boston,  289,  291. 
Lowrey  on  protection,  315,  n. 

Macleod,  H.  Dunning,  on  property, 
451. 

McCulloch  vs.  Maryland,  269. 

McCulloeh,  Hugh,  19,  39,  n. 

Madison,  James,  on  direct  taxes, 
547,  n. 

Magna  Carta,  111,  285. 

Malthus,  theory  in  India,  159. 

Mansfield, Lord,  decision  on  slavery, 7. 

Manufactures,  State  intervention,  252 ; 
taxing,  26. 

Maryland  Farmers'  Alliance,  15. 

Massachusetts,  dooming  in,  431 ;  early 
yiJ\^^\  \  provisions  for  assessing,  244;  gen- 
4r3*i  9  ll  I  y®'"^^  property  tax,  393  ;  numbers  of 
V  !      taxpayers,  572  ;  poll  taxes,  337  ;  tax 

I  '  '     commission,  435 ;    taxation   of  in- 

comes, 529. 

Matches,  stamp  tax,  349. 

Material,  raw,  definition  of,  59. 

Menier  on  discriminating  taxes,  387  ; 
on  meaning  of  words,  201. 

Mercantile  system,  114. 

Mexico,  Alcavala,  135 ;  customs,  132 ; 
land  tenure,  139 ;  repeal  of  transit 
duties,  140;  taxation,  130. 

Middle  ages,  taxation  in,  100;  land 
ta.x,  102. 

Mill,  John  Stuart,  discriminating  ta.x- 
ation, 387  ;  on  direct  taxes,  351. 

Minorities,  rights  of,  553. 

Mississippi,  suffrage  in,  340. 

Mobilia  personam  sequuntur.,  440. 

Money,  taxation  of,  477,  563. 


Monopolies  and  indirect  taxes,  348 ; 

State,  606. 
Morality  and  taxation,  5  ;  commercial, 

432;  standard  of,  415. 
Mortgage,  definition  of,  478  ;  in  Rome, 

480  ;  taxation  in  California,  487  ;  in 

New  Jersey,  479. 
Myddleton,  Hugh,  638. 

JVaviculari,  of  Eome,  94. 

Necessity  as  a  check  on  taxation,  243. 

New  Jersey  taxation  of  mortgages, 
479  ;  local  taxation,  628. 

New  liiver  Company,  638. 

New  York,  number  of  ta.xpayers,  571  ; 
source  of  wealth,  562 ;  tax  commis- 
sion, 61 ;  taxation  of,  520. 

Nile,  cleaning  of  the,  146. 

Oaths,  use  and  value,  432. 

Octroi  in  Italy,  228,  n. 

Officeholding  in  Greece,  87. 

Ohio,  assessment  of  corporations,  314 ; 
tax  experience,  424 ;  taxation  of 
money,  532,  n. 

Oleomargarine,  taxation  of,  257. 

Olney,  Richard,  argument  on  income 
tax,  369. 

Opdyke,  George,  on  direct  ta.xes,  351, 
n. ;  352. 

Opium  duty,  166;  movement  to  sup- 
press, 174. 

Options,  legislation  on,  260. 

Our  burden  and  our  strength,  18. 

Package,  original,  decision,  276. 

Paper  money,  idea  of,  30,  n. 

Paris,  taxation  of,  520. 

Parish,  as  tax  unit  in  Great  Britain, 

624. 
Parliament,  origin  of,  109. 
Patten,    Simon    N.,    proposition    on 

taxes,  265. 
Pennsylvania,    poll    taxes,   338:    tax 

laws,  441. 
Pension,  in  United  States,  3,  17. 
People  vs.  Township,  289. 
Perjury,  6,  m.,  74. 
Persia,  taxation  in,  213,  n. 


INDEX. 


647 


Personal  property  and  real,  374,  398, 
401 ;  assessment  of,  402 ;  exemp- 
tions, 411. 

Peter's  pence,  67. 

Pljmouth  Company,  233. 

Police  and  ta.xation,  254. 

Poll  tax,  330 ;  mark  of  inferiority,  334 ; 
sufirage,  335. 

Population  and  taxation,  546 ;  increase 
in  Japan,  81 ;  Malthusian  theory  in 
India,  159. 

Possession,  meaning  of,  461. 

Prices  and  taxation,  40,  218. 

Process  of  law,  due,  510. 

Production,  burden  of  taxation  on, 
390  ;  cost  of,  583. 

Profits  and  taxation,  600  ;  decrease  of, 
4 ;  ditt'usion  of,  557,  586 ;  in  tax 
legislation,  31,  43. 

Progression  in  taxation,  388. 

Property,    definitions    of,    451,    460 ; 
credits  as,  450,  467 ;  movable  and 
immovable,  556;  general  tax,  392, 
^^^r*;428,435,629. 
_  y  proportional  taxation,  320. 

3  /V  7  ^Protection    and    taxation,    315,  456; 
"CW^       policy  in   the  United  States,  258, 
'iy^L  '^     612.  Tl'ti  ,T)'\ 
'  <4 1  Prussia,  cadastre,  622 ;  taxation  of  in- 

comes, 524. 

Ptolemy  V,  154. 

Public  purposes,  what  are,  288. 

Publicans  of  Kome,  71,  91. 

Kailroads  as  "  public  purposes,"  297. 

Real  property,  assessment  of,  396 ; 
taxation  of,  374,  395. 

Reciprocity,  614. 

Rent  of  land,  590 ;  tax  on  house,  635. 

Rents  in  kind,  110. 

Repairs,  tax  on,  28. 

Representation  and  taxation,  68, 110. 

Reprisals,  615. 

Residents,  defined  early  in  Great  Brit- 
ain, 625. 

Retroaction  in  taxation,  319. 

Revenue,  definition,  247 ;  source  of 
State,  202. 


Revenue  commission,  United  States, 
19-60. 

Revolution,  French,  128. 

Rliode  Island,  opposes  impost,  578 ; 
tax  provisions,  398. 

Rome,  assessments,  97  ;  bachelor  tax, 
95 ;  destruction  of  industry,  90 ;  dis- 
tribution of  corn,  94 ;  legacy  tax, 
89;  mortgages,  480;  publicans,  71, 
91 ;  provincial  taxes,  93 ;  taxation, 
88,  518. 

Rosetta  stone,  153. 

Russia,  excessive  taxation  in,  227. 

Salt  monopoly  in  China,  78 ;  taxation 
of,  in  France,  121  ;  in  India,  165. 

Say,  Leon,  on  income  tax,  4,  n. 

Scutage,  108. 

Securities,  sittis  of,  457 ;  taxation  of, 
634. 

Seligman,  E.  R.  A.,  on  general  prop- 
erty tax,  428. 

Servitude,  idea  of,  444. 

Sharswood,  on  security,  250. 

Sherman,  Isaac,  tribute  to,  61. 

Shipping,  taxation  of,  412. 

Sicilian  Vespers,  67. 

Silence  des  grenouilles,  123. 

Silver,  Federal  tax,  265. 

Single  tax,  633. 

Situs  of  debt,  498  ;  personal  property, 
406.  438 ;  vessel,  448. 

Smith,  Adam,  maxims  of  taxation, 
385 ;  on  diffusion  of  taxes,  598,  n. 

Source  of  income,  535,  n. 

South  Africa  Company,  248. 

Spain,  taxation  of  Cuba,  14. 

Special  commissioner  of  revenue,  38. 

Spencer,  Herbert,  on  right  to  tax,  223. 

Spirits,  distilled,  consumption  in 
United  States,  51 ;  profits  to  distil- 
lers, 31 ;  taxation  of,  in  United 
States,  11,  41-56. 

Stamps,  use  of,  41,  56 ;  duties  in  Unit- 
ed States,  618. 

Stare  decisis,  7. 

State  and  taxation,  222 ;  instruments 
exempt  from  taxation  by  the  Gen- 


648    THE   THEORY  AND   PRACTICE   OP   TAXATION. 


eral  Government,  277 ;  paternalism, 
5  ;  tax  commissions,  427. 

Statistics,  want  of  reliable,  35. 

Story,  on  limitations  on  taxation,  301. 

Strachey,  Sir  John,  on  opium,  170. 

Subsidy,  382. 

Buflrage  and  taxation,  552;  poll  tax, 
335 ;  universal,  3,  n. 

Sugar,  bounties  on,  299,  345. 

Sumptuary  laws,  256. 

Switzerland,  alcohol  monopoly,  187 ; 
budget,  185;  constitution,  182;  cus- 
toms duties,  186;  double  taxation, 
194;  local  taxes,  193;  progressive 
taxation,  191,  523,  534;  property 
tax,  190. 

Taille,  119,  443. 

Tallies,  109,  n. 

Tariff  and  consumption,  576;  prices, 
577 ;  protective,  295,  n. ;  wages,  60 ; 
measure  drafted,  59 ;  who  pay 
duties,  578. 

Tax,  definition,  200;  alienation  of 
power,  279 ;  direct,  in  law,  357 ; 
evasion  of,  50,  328;  general  prop- 
erty, 392 ;  limitations  on  power, 
301. 

Taxation  and  anthropology,  72 ;  de- 
mocracy, 16,  115;  morality,  5,  214, 
327 ;  protection,  315,  346  ;  represen- 
tation, 68,  286;  spoliation,  570;  a 
science,  12, 199  ;  best  methods,  603 ; 
definition,  204;  double,  408,  438, 
634 ;  discriminating,  386 ;  extra- 
state,  310;  in  literature,  73;  his- 
tory, 74 ;  limitations  on,  230,  277 ; 
literature  of,  63 ;  multiple,  533  ;  op- 
pressive, 4.  13 ;  origin,  224 ;  perver- 
sion, 267  ;  proportional,  320  •  pro- 
duction, cost  of,  390,  583;  public 
purposes,  287  ;  revenue,  248 ;  rules 
and  maxims,  284,  385 ;  sphere  of, 
226  ;  stimulus  to  industry,  217  ;  sub- 
jects of,  384  ;  unequal,  323,  565. 

Taxes,  benefits  from,  9  ;  diffusion  of, 
569 ;  direct  and  indirect,  340 ;  di- 
rect, unpopular,  352  ;  indirect,  and 


monopolies,  349  ;  cost  of  collecting, 
347  ;  objections  to,  343  ;  war,  reduc- 
tion of,  40. 

Taxpayers,  defaulting,  403;  number 
of,  571. 

Tewtik  Pasha,  143. 

Thiers,  Adolphe,  on  diffusion  of  taxes, 
599,  n. 

Titles  to  property,  467. 

Tobacco  regime,  608. 

Toll,  382. 

Tolstoi,  on  wealth,  69. 

Tooke,  John  Home,  527. 

Torture,  430. 

Transit  dues,  609. 

Turks,  conquests  of,  99. 

Tweed,  William  M.,  public  interest 
in,  572. 

Tyler,  Wat,  401. 

Uniformity  of  taxes,  236,  322. 

United  Kingdom,  550. 

United  States,  cost  of  the  civil  war,  32 ; 
dependence  on  the  tariff,  611  ;  direct 
taxes,  359  ;  financial  history,  20 ;  in- 
come tax,  528,  545;  indifference  to 
taxation,  64;  internal  taxes,  618; 
local  taxation,  622;  prices  in  war, 
32;  protection,  612;  revenue,  15, 
202;  tariff  of  1897,  612. 

Vauban's  Dixme  Boy  ale,  125. 
Vinton,  Lindley,  59,  n. 

Wages  and  tarifl',  60. 

War  and  origin  of  taxes,  224. 

Wealth,  prejudice  against,  69;  pro- 
duction and  distribution,  2. 

Welfare,  general,  237. 

West,  Max,  on  inheritance  tax,  621. 

Weston  vs.  City  of  Charleston,  273, 
279. 

White,  Edward  D.,  on  option  bill, 
261,  n. 

Window  tax  in  France,  519. 

Wine,  heavy  taxation  in  France,  76. 

Zaccheus,  a  publican,  71. 


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